Jamie Mackay: The Country host on the market volatility potentially impacting red meat sector

New data shows red meat prices are likely to remain strong, but there's a growing risk of market volatility.

Beef + Lamb New Zealand has warned the margins are likely to tighten, and they've cited rising input costs and the risk of dry El Niño conditions creating additional pressure.

The Country's Jamie Mackay explained further.

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Episode Transcript

Speaker 1 (00:00):
The host of The Country, Jamie Mackay. Hello, Jamie. G'day, Heather.
What's going on with the red meat? Well, earlier this week,
Beef and Lamb New Zealand came out with its new
season outlook for the new season, which we've just started.
In fact, the farmers are out there lambing and calving
as we speak. So this is for the 2026-27 season.

(00:20):
What they're saying is they can expect to see continued
strong meat or red meat returns, but... the margins are
likely to tighten. And there's a couple of reasons, or
there are some factors coming into play here. The New
Zealand dollar, and I'll talk about that a wee bit later,
is likely to strengthen against the US dollar. And we've

(00:41):
also got, obviously, the risk of a very dry El
Nino spring, summer coming up. Now, average farm gate prices
are expected, as I said, to soften slightly, but these
are off historical highs. Lamb prices expected to decrease 8%.
Beef prices down 4.5%. And on top of that, farm

(01:03):
expenditure is expected to be up 4.2%. So your average farmer,
your average sheep and beef farmer out there, Heather, can
expect a farm profit before tax to average $ 267, 000. And
while that sounds a lot, it is down 20% on
the season we've just finished, which was a record average.
of $ 335, 000. Now, just before you go, $ 267, 000 is a

(01:29):
hell of a lot of money. Remember, from that, the
farmer has to pay tax, depreciation, own drawings so they
can live, and also any capital purchases. And it's very
easy to spend, for instance, either $ 267, 000 on a tractor.
So look, things are good, but they're just not going
to be quite as good as they were last season. Also, Jamie,

(01:51):
if you think about the value of the land that
they're often sitting on, that profit's actually quite small, isn't it,
when you think about it like that? Oh, yeah. Look,
for sheep and beef farmers especially, the likes of dairy,
kiwifruit especially, you're going to get a better return on
your equity. But, yeah, look, historically, Heather, sheep farmers might

(02:11):
have got 2% return on investment if you were really being–
hard asked about it. You would say, well, I'll just
sell the farm and put my money in the bank
at five or six percent. And I'm talking historic averages there. So, no,
it's not a fantastic return. I guess you have capital gain,
but a lot of that's gone out of farming in
recent years as well. So for many of them, it's

(02:33):
a lifestyle. But to be fair, the sheep farmers have
had a really good season. They're looking towards another positive
one So they need to take it. They've got a
lot of catching up to do. Yeah, too right. And
what does Rabobank have to say? Well, Rabobank, this was
another one from earlier in the week I didn't get
to on Tuesday evening. And so they come out with
an agribusiness monthly report, obviously every month. So September says...

(02:58):
You know, you can split it in two. You can
look at the commodity outlooks, dairy, beef, sheep, meat, down
a bit, all of them, but still looking really positive.
The problem for farmers and the problem for business people
is the input side, the cost side of the ledger.
Farm inputs, obviously, with fertiliser and fuel, with the Middle

(03:20):
East escalation, what is happening? Brent crude's at $ 96 a
barrel at the moment. So that's something that's really hitting
farmers quite hard, especially the fertilizer. And the other one
is interest rates and foreign exchange. So I talked about
a strengthening dollar. We're at about 59 US cents. Last
time I had a look, Rabobank saying we can expect

(03:42):
that to go to 61 cents in the next 12 months.
We can still live with that, but it takes a
bit of the edge off. And the other one is
obviously which affects all of us, interest rates, Rabobank, the
chief economist, Ben Pickton, saying we can expect another couple
of increases in the official cash rate, and they're reckoning

(04:03):
it's going to be at 3.25% by Q1 next year. Yeah, interesting. Hey,
thank you, Jamie. Always good to talk to you. We'll
talk to you again next week as Jamie Mackay hosts
of The Country. For more from Heather Duplessy-Allen Drive, listen
live to Newstalk ZB from 4pm weekdays, or follow the
podcast on iHeartRadio.