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Pastoral profits up but purse strings held tight

Record profitability hikes over the past year are enabling farmers to restore their bank balances, although most are remaining conservative in their spending.

Record profitability hikes over the past year are enabling farmers to restore their bank balances, although most are remaining conservative in their spending.

Increased dairy production, coupled with a record payout of $7.50 per kilogram of milk solids, saw gross incomes lift by 23 percent, the Ministry of Agriculture and Forestry's 2011 pastoral farm analyses show.

MAF said despite a variable year climatically in many parts of the country, dairy incomes lifted significantly, continuing a trend of improving returns since the low of 2008/09.

Similarly, higher product prices pushed sheep and beef farm profits to record levels in 2010/11 – farm profits before tax more than doubled to $148,000, the highest level for 10 years.

According to Beef + Lamb New Zealand, sheep and beef exports totalled $5.8 billion last year, with tight global supplies driving market prices up.

"Improved prices this year have provided cash to address legacy issues from successive years of droughts and increased debt levels," said economic service executive director Rob Davison.

But sheep numbers are down 2.1 percent after a tough 2010 spring, he said. Although early expectations are for this spring’s total lamb crop to be up to 26.2 million, it will be the second-smallest lamb crop in 50 years.

MAF analyst John Greer said beef and sheep farmers were reducing debt and spending on productive inputs, particularly fertiliser.

”Sheep and beef farmers are budgeting for an equally good 2011/12 income," he said.

“Prices are predicted to be almost as good as last year – though the increasing strength of the New Zealand dollar may undermine this.”

However, they were generally still cautious about spending as they were conscious that returns could fall as fast as they had climbed.

Similarly, spending on dairy farms remains tight, according to MAF analyst Phil Journeaux.

“This is likely to remain so until some time into the 2011/12 season when farmers see how the season – and payout – is progressing.”

In the deer farming sector, venison returns at above five-year-average levels enabled farmers to achieve a good financial result, MAF said. The more stable income had farmers feeling positive and improved venison prices are again expected in 2011/12.

Climate had a significant impact on North Island deer farms, with a dry autumn and a wet spring reducing the average fawning rate to just 80 percent, and many farmers are rebuilding stock numbers.The South Island deer model largely maintained productivity despite a cold spring.

Part of its annual Farm Monitoring Report series, MAF's analyses provide an overview 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.