The recent surge in our currency is a real worry for farmer returns in this coming year, especially as most of our commodities are in short supply and are in demand in our export market.
This article analyses the effect currency had on our meat trade last year, and with the currency rising now at the start of the production season, and our government seemily unwilling to stop the situation, it could have a serious affect on our economy.
Beef and Lamb NZ's economic service quantified the cost of the currency in its New Season Update in September and used levels of US$0.68-0.73 to illustrate the effect.
At US 0.79 as it is today, using Beef and Lamb NZ's relative calculations, this could take $130 per head off bull returns and $30/Hd off manufacturing cow.
When we look at projected whole farm returns, an exchange rate staying this high for a significant period of time would probably push the all average sheep and beef farm into an annual loss situation. What a disappointment that would be with record demand for most of our commodities!
A high New Zealand dollar was last year responsible for an $800 million drop in NZ meat industry earnings. After earning $6.5 billion in 2008-09, the value of exports for the year ending June 2010 reached only $5.7b.The value of sheepmeat exports dropped $200m over the previous year to $2.8b despite a global shortage resulting in high in-market lamb prices. The value of beef exports also declined $200m to $1.2b reports The Rural News.
In its annual report the Meat Industry Association (MIA) says the economic crisis had less direct impact on the sector than on other industries. Global meat consumption actually increased in 2009 although below the rate of growth in previous years. But a high exchange rate, particularly over the peak processing season, eroded earnings for NZ meat exporters.
MIA chairman Bill Falconer says 2009-10 was another challenging year for meat companies. “While in-market prices for products such as lamb have been at some of their highest levels ever, these high prices have not been reflected in the returns to the industry, primarily as a result of exchange movements,” he says. The industry’s efforts to maximise the value of each carcase has led to significant exports of by-products.
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