Exchange rate fluctuations and higher costs could cause sheep profits in New Zealand to drop back close to a 50-year low next season.

Sheep returns to farmers this year averaged NZ $89/head, which was NZ $31/head higher than the low of 2007/08, mainly due to better prices and exchange rate gains. But this could fall back down to NZ $66/head in 2009/10, John Mabb from Meat & Wool New Zealand said.

“New Zealand exports to over 80 countries each year, so currency and exchange rates are very important to farm profits. Assuming exchange rates of around NZ $1: $0.63, and higher oil and fertiliser costs, we could replicate the 50-year low in average farm profits seen in 2007/08, when the NZ dollar was worth 77 cents.”

In contrast, when sheep and beef farm profits peaked in 2001/02, the NZ dollar was worth just US $0.42. “November to June is the main exporting period, so we’ll have to wait and see what happens to rates then.”

Mr Mabb said a quarter of New Zealand’s exports (by value) go to the UK and it was likely to adopt a similar “fresh and natural” marketing message as used this season.

“Volumes going into the UK are pretty consistent at 97,567t (cwe), but we are seeing a slow decline in frozen lamb and a slow increase in chilled lamb. That’s mainly due to the main supermarkets wanting more fresh produce.”