Profits for sheep and beef farmers are expected to halve this season.
Beef + Lamb New Zealand says a sharp decline in lamb prices will combine with the impact of the drought, to hit farm profit hard.
Profit before tax on sheep and beef farms is predicted to fall 54% on last season - to an average $73,000.
Beef + Lamb New Zealand economic service executive Rob Davidson said that higher lamb numbers have not offset the lower prices.
He predicts an average lamb price of $85 per head - which is down 25% on last seaon's $113 per head.