Published March 2023

P23001

Summary report

Mid-Season Update 2022-23
Overview
Despite a very weak start to the season forexports and prices, conditions are expected
to improve in the second half of the 2022-23
season, but there are downside risks. Generally,
demand for red meat in key markets remains
solid, but continued high inflation is impacting
consumer demand and it's uncertain how
long this will last. Supply of red meat globallyremains tight.
A large decrease in farm profitability is forecast
for 2022-23, with factors such as a poor start
to the season with lower farm-gate prices andcontinued upward pressure on farm expenditure
combining to reduce profit margins. FarmProfit before Tax is estimated at $146,300, a
31 per cent decrease from 2021-22 and below
the 5-year average. When inflation is taken into
account, Farm Profit before Tax is estimated at$96,600 a 35 per cent decrease from 2021-22.
Red meat export returns are mixed as they
decreased in the first four months of theseason (down from record highs in 2021‑22),
especially for mutton. Lamb and beef prices
also fell but not by the same magnitude asmutton. A fall in demand from China drove thedecrease in sheepmeat, but beef returns onlydecreased slightly compared to the record
start of last season, and a tightening of global
beef supply has underpinned the global beefmarket, which was further elevated with thevery recent case of BSE (Mad Cow Disease) inBrazil.
Eighty-five per cent of mutton exports are toChina. When China relaxed COVID-19 related
rules towards the end of 2022, the numberof infections rocketed. This has significantly
impacted mutton export receipts, which were
one-third lower than in the same period lastseason and that has been felt in farm-gate prices.
The mixed market sentiment is cushioned by
the outlook for the NZD, which is expected
to remain low, which is favourable for NZ
exporters.

Total combined sheepmeat and beef export
receipts for the 2022-23 season are forecast
to drop 10 per cent on 2021-22 to $9.3 billion.
While down from the record last year, thisis still 9 per cent higher than the five-year
average.
Overall, the outlook for global economic
conditions is relatively weak, and uncertainty ishigh due to inflation. Positively, many of New
Zealand’s key red meat markets are wealthy
countries that will weather the difficulties
better than others.
Global red meat trade faces several key
challenges in 2023. These include ongoingpandemic disruptions in China creatingvolatility, the impact of tightening monetary
policy in key markets on consumer demand
and the sensitivity of agricultural trade togeopolitical tensions.
Cyclone Gabrielle has proven to be devastating
for Northland, Auckland, Bay of Plenty, partsof Waikato and especially East Coast farmers.
Slips, silt, destroyed farm infrastructure andlivestock losses were not fully known at thetime of writing. The economic impact of thisevent will affect farmers in these regions formany years.
The cyclone has hit at a bad time financiallyfor farmers given the sharp fall in revenue.
Southland and Otago are also being strongly
affected by drought. Farmer confidence istherefore at historic lows as farmers grapple
with the combination of these poor returns,
increased costs as a result of inflation, theimpact of these weather events and theprospect of further cost increases in the future
as a result of the Government’s overwhelming
environmental policy agenda.
The latest SNZ livestock figures show a greater
decrease in livestock numbers than expected.
The increased sale of farms destined for forestry(estimated at 175,000 hectares over the last fiveyears) is a likely factor in the reduction.

Sheepmeat

Beef• For 2022-23, total lamb export receipts are forecast
at $3.5 billion FOB1, down 12 per cent on the record
2021-22.
• The decrease reflects an 11 per cent drop in theaverage value of lamb. Lamb export volumes are
forecast to be down three per cent on last season.
• The forecast average FOB value of exports is six per
cent up on the five-year average.
• Export receipts for co-products are forecast to lift
18 per cent reflecting strong recovery in petfood,tallow, and hides, following the disruption of
COVID-19.
• The lamb crop in spring 2022 is estimated at
20.2 million head, 8.5 per cent lower than in 2021,
reflecting declining breeding ewe numbers and thatdry conditions for some regions affected mating.
• Mutton export receipts are forecast to drop 16 percent on 2021-22. A 15 per cent drop in averageexport value underpins the weak forecast; alongside
a four per cent decline in production.
• Total export receipts for sheepmeat (lamb andmutton) for 2022-23 are forecast to be $4.2 billion
FOB, down 12 per cent on 2021-22.
• The weighted average farm-gate price for lambis forecast at $145 per head, or 760 cents per kg,
which is 12 per cent lower than in 2021-22, but two
per cent above the five-year average.
• The annual average farm-gate price for mutton isforecast at $112 per head, or 430 cents per kg, which
is 23 per cent lower than in 2021-22, and 11 per centbelow the five-year average.
• Demand in all key markets for New Zealand lamb ismoderately weak. Global prices weakened off record
peaks as the season commenced due to supply
increasing and China’s demand weakening.
• Import demand from China, the US and the EU
region are going to be key drivers of recovery forthe remainder of the 2022-23 season.

• Export revenue from beef and veal in the 2022-23
season is forecast to be $5.0 billion FOB, downeight per cent on 2021-22.
• Beef and veal exports are forecast to be flat at
478,000 tonnes shipped weight.
• Average export returns for the season are forecast
to drop to $9,400 per tonne, down 6 per cent on
2021-22, but still up 17 per cent on the five-year
average.
• The forecast for the 2022-23 season is for theaverage farm-gate price for all cattle to drop one percent on 2021-22, to 550 cents per kg, which is a mixof 611 cents per kg for P steer/heifer (270-295kg),
405 cents per kg for M cow (170-195kg), which itself
includes a large component of cull dairy cows, and602 cents per kg for M bull (270-295kg).
• The outlook for the global beef market is relativelypositive. Like sheepmeat, consumer demand andprices for beef in New Zealand’s key markets
levelled off from record highs achieved last season,
but the decrease is markedly less compared tosheepmeat.
• In 2022, US beef production reached a record
high because of a brutal drought in key beef
cattle states, forcing farmers to liquidate herds.
However, factors such as weather, politics, policy,
demand, and cattle diseases all placed enoughdownwards pressure on beef supply allowing
export performance to reach record highs.
• Global beef production for 2023, as estimatedby the USDA in February 2023, is expected todecrease one per cent on 2022. Despite Brazil,
and Australia gaining global market share, thereduction in US, Uruguay, and Argentina exports
offset this.

Free on Board, which is the standard measure of the value of exports.

1

Exchange Rate Impact• New Zealand sheepmeat and beef export returns
and farm-gate prices are significantly impacted byexchange rate movements because New Zealand’s
industry focuses on exporting the majority of its
production.
• The NZD is forecast to depreciate against the USD(and has been revised down from the New Season
Outlook 2022-23 that was published in October),which is the major trading currency for New Zealandmeat. There is downside risk to the forecast presented
in this report, as global economic conditions haveevolved since the time of this forecast.
• The outlook for the NZD is favourable for New
Zealand exporters and the primary sector. A greater
proportion of the strong prices in New Zealand’s
markets will flow into farm-gate returns.

Gross Revenue• Gross farm revenue for 2022-23 (under an exchange
rate scenario of USD0.63) is forecast to average$677,800 per farm, down 6.4 per cent on 2021-22.
This is driven by a large decrease in sheep revenue
and a moderate decrease in beef cattle revenue.
Farms with a higher ratio of sheep to beef cattle will
feel the drop in revenue more severely than thosebuffered by a relatively stronger outlook for beefcattle.
• Sheep revenue, which is forecast to contributearound 47 per cent of gross farm revenue onaverage, decreases 14.3 per cent to $319,700 per
farm for 2022-23. Farm-gate prices for prime andstore lamb decreased further than anticipated at thestart of the 2022-23 season, and mutton prices also
decreased significantly.
• Cattle revenue decreases 3.1 per cent to $186,200 per
farm for 2022-23 with farm-gate prices softening.
• Gross farm revenue is spent on goods and services
for running the farm business including wages,
shearing contractors, maintenance and agriculturalservices; then taxation, debt servicing, debt
reduction and personal living expenses.

Expenditure• Farm expenditure is estimated to increase 4.1 percent to $531,500 per farm for 2022-23.
• Inflation continues in farm input prices prompting
farmers to attempt to cut costs while balancing
the production and physical elements of the farm.
Expenditure in most categories is estimated toincrease, with the largest increases forecast forinterest, fertiliser, fuel, shearing and wages.

• Fertiliser, lime, and seeds expenditure is the largest
area of expenditure and comprises around 19 percent of total farm expenditure in 2022-23. Fertiliser,lime, and seeds expenditure increases 6.1 per cent toaverage $102,100 per farm.
• Interest expenditure increases 12.5 per cent to$54,000 per farm (interest expenditure, not interestrates). Term liabilities are forecast to be similar to2021-22, however interest rates for new borrowings
and overdrafts, and the mix of lending that is on
fixed and floating interest rates, have increased
pushing up interest expenditure, which accounts
for around 10 per cent of total farm expenditure, onaverage.
• Shearing expenses continue to climb, reaching$29,000 per farm on average for 2022-23, up 6.7per cent. On a per head basis, the increase is 8.1 percent – to $6.14 a head.

Farm Profit Before Tax• A large decrease in farm profitability is forecast forthis season, with factors such as lower market prices
and significant cost increases reducing profit. In
2022-23, Farm Profit before Tax is expected todecrease 31 per cent from 2021-22 to average$146,300. It is noted that 2021-22 was an exceptional
year for profit, with per farm profit before tax morethan 50 per cent higher than the average of theprevious five seasons.
• Farm profit before tax is used to meet taxation
payments, personal drawings for family living
expenses, debt repayments and the purchase ofcapital items for the farm business, such as farmmachinery.
• Farm profitability forecasts for 2022-23 were madeprior to Cyclones Hale and Gabrielle and it willtake time to quantify both livestock and financial
impacts from the widespread devastation caused by
the cyclones. Farms impacted by floods face large
costs to restore infrastructure, feed, stock, and otherlosses, some of which may be offset by insurance orrelief payments from Government or some of both.
Sheep and beef farmers already faced lower revenue
and increased costs prior to these climatic events
over summer adding to financial woes.
• In contrast, very dry conditions in Otago andSouthland have provided a different type ofpressure for farmers in the South Island.
• Farmer sentiment and overall confidence isextremely low this season as uncertainty about
environmental policy persists. Expectations forincreasing costs and additional regulatory costs
to come in the not-too-distant future override
historically high farm-gate prices.

Further information
For more information or enquiries email econ@beeflambnz.com