Pastoral farm profits likely to fall in coming season

BUSINESSDESK: Pastoral farm businesses are expected to tighten up spending as product prices come off recent highs, the Ministry for Primary Industries says.

Production has generally been good over the past season, MPI says in its 2012 pastoral farm analysis as part of its annual Farm Monitoring Report. While national dairy production was up nearly 10% for the 2011-12 season, farm income was similar to the previous year because of a declining payout.

For the coming 2012-13 season, total national income from milksolids is expected to fall 20%, resulting in a model farm drop in profit before tax of about 57% compared to 2011-12. The model predicts a profit before tax of $137,589, equivalent to $0.87 per kgMS produced.

"Businesses carrying high levels of debt are particularly vulnerable," MPI says.

The reports provide models and overviews of the financial performance of typical dairy, sheep and beef, and deer farms, based on information gathered from a sample of farmers and industry stakeholders. Estimated production and profits are also provided for model (hypothetical) farms.

Sheep and beef farmers will experience a 6% drop in income in 2012-13 through lower lamb and wool returns, with profit before tax expected to fall around 15% to $181,300 for the model farm. MPI notes that this will still be the second-highest profit for the national sheep and beef farm model since 2000.

Deer farmers had a third season of relatively stable product prices and good on-farm productivity in 2011-12  and similar results are forecast for the coming season. Confidence in the sector has been boosted, along with some capital expenditure and debt repayment.

MPI also notes key pastoral sector developments, including the need to reduce environmental impacts such as nutrient runoff into waterways.

The beginning of mandatory tagging of cattle under the National Animal Identification and Tracing (NAIT) programme, land-use changes and succession for sheep and beef farmers and the Trading Among Farmers proposal for dairy farmers are also seen as major issues to be addressed.

One dairy farming feature is a divergence in pasture-based farming. One management style is low-cost, low-input farming which might include once-a-day milking.

The other is high-intensity, high-input farming using infrastructure such as herd homes and feed pads.

"These require quite different management skills," MPI says.