Good demand for New Zealand lamb and beef will continue, underpinned by continuing tight global supplies, particularly for lamb, the meat industry says.
Beef and lamb exports this season are expected to total $4.7 billion, 1.6% less than last year, mainly because of a 3.5% drop in meat shipments to world markets.
"Indications from scanning results are that the lambing%age will be back 2.5%age points on last year," said agricultural economist Rob Davison, who heads the economic service of Beef and Lamb New Zealand -- the industry board derived from the old meat and wool boards.
This would produce a lamb crop of 27.6 million, down 2.5% on last spring. Fewer replacement lambs will be kept this year, leaving export lamb shipments down 1.7% on last year.
In terms of lamb production, New Zealand's breeding ewe flock had more or less stabilised for lambing this spring, after being slashed by 15% over the past two years by drought and changes in land use.
Lamb prices (per tonne) had held around last year's levels and beef prices lifted 3%, said Mr Davison.
International market prices drive the sheep and beef sector because New Zealand exports 82% of its beef and 92% of its lamb.
But profits at the farm gate would heavily depend on exchange rate movements. A model all-classes "average" sheep and beef farm selling 1620 export lambs, 250 export sheep and 92 prime cattle would see a drop of $18,000 revenue if the NZ dollar exchange rate rose from US68c to US72c.
"Everything has been set for this year's production but the big uncertainty is where the exchange rate will lie and what this will deliver to the export sector," said Mr Davison.
The New Zealand exchange rate continued to loosely follow Australian and Canadian currency trends that were weighted toward oil and mineral commodities.
"Where the exchange rate lies between November and June when the majority of farm production is sold, will have a large influence on sheep and beef profitability at the farm level and export earnings," he said.
Mr Davison said that beef cattle numbers at 3.92 million this June were 1.3 per cent down on the previous year, and beef sendings will drop 5% from a lower slaughter of cull cows as new dairy herds consolidated, and the rate of conversions from sheep and beef farms to dairy slowed from recent years.
There will be some re-stocking in Northland and the Waikato following last season's dry conditions, and more bulls are expected to be finished at 18 to 20 months than in recent years to generate cashflows on-farm.
If the exchange rate fell from current levels to about US68c all-classes sheep and beef farm profitability before tax was estimated to average $54,000 a farm for 2010-2011, down 5% on the previous year.
But at a less favourable exchange rate of US72c the average farm profitability would fall to $34,000, because the costs of farming would mostly not fall.