Beef + Lamb New Zealand's Economic Service is predicting a very lean year for sheep and beef farmers.
It's forecasting their before tax profits will halve this year, to an average of $73,000, mainly due to a 25% drop in lamb prices, as meat companies try to recover some ground from heavy losses last year.
It's also expecting wool prices to drop by more than 20% on last year.
Economic Service executive director Rob Davison said an increase in lamb numbers this season won't be enough to offset the lower prices.
And on top of that the drought is making the outlook even worse for North Island farmers.
Mr Davison said North Island slaughter weights for the week just ended, compared with the same week a year ago, are back by 1kg.
He said South Island lamb weights are about the same as they were last year, so it's doing a bit better, particularly further south.
The Economic Service also expects cattle prices to ease back by 8% to 9% on last year, but Mr Davison thinks the longer term outlook, both for beef and lamb, is reasonably positive.
He said the outlook for beef prices is pretty positive looking 12 or more months ahead and the lamb market is expected to firm up.
But Mr Davison said it's also important to acknowledge that Europe is still in recession with high unemployment, but there is still reasonable demand for New Zealand lamb there.
