May 14 (Bloomberg) -- New Zealand's lamb flock may drop to a 50-year low next season after drought cut breeding stock and farmers converted to more profitable dairying.

Lamb numbers may fall 3.5 percent to 30.3 million in the year starting September, the lowest since 1958, based on forecasts by industry group Meat & Wool New Zealand Ltd. The amount of lambs killed for export may decline 10 percent to 22.8 million, a five-year low, as farmers hold back animals to replenish stock.

``Some of the lower-paying markets will not be supplied'' at those rates, said Rob Davison, executive director of Meat & Wool's economic service.

New Zealand farmers, the world's biggest exporters of lamb and dairy products, slaughtered stock or stopped milk production in the first quarter as hot, dry weather in much of the country cut feed supplies. The drought will reduce farm production by 1 percent this year and trim economic growth by about 0.5 percent, Treasury said last month.

Europe and the U.K. buy about half New Zealand's lamb production, with North America and North Asia the next largest markets with about 12 percent each.

The cut in feed supply, after years of weak prices for sheep meat and a high New Zealand dollar, are speeding the conversion of sheep farms to dairying. PPCS Ltd., the country's biggest meat processor, this week announced the closure of its Oringi plant in Hawke's Bay, citing a forecast 500,000 drop in North Island sheep numbers.

Forecasts Cut

The drought will reduce New Zealand's lamb production to 31.4 million animals this year, 7.6 percent less than a year earlier and 1 million fewer than Meat & Wool forecast in February.

That revision and an increase in the number of lambs killed for export to 25.5 million reflects the dry weather since then and a slower-than-expected recovery from drought in Hawke's Bay a year earlier, Davison said.

Sheep fertility rates are down, while the persistent strength of the New Zealand dollar has cut farm incomes and bruised farmer confidence. The New Zealand currency averaged 78.83 U.S. cents so far this year, up from 65 cents in 2006.

``The strength of the New Zealand dollar has been pretty savage'' on sheep farmers, Davison said. ``The increase in the dairy herd has also been a bit more rapid than we had thought.''

Beef, Dairy Stock

New Zealand's export beef cull has fallen 17 percent the past four years on demand for cows from farmers wanting to start dairy herds.

The current year's kill will fall 4 percent to about 1.84 million animals, before rising 3 percent next year as farmers cull older stock from a larger national herd, Davison said.

The national dairy herd rose to 5.3 million at June 2007, up 2 percent since 2002, Statistics New Zealand said in a five-year census published today. The number of dairy milking cows and heifers reached 4.2 million, an 8 percent gain in the same period.

Sheep numbers fell to 38.5 million, down 2.8 percent from five years earlier, and a 45 percent drop the past 25 years, the government statistician said. Sheep numbers are around 38 million now, Meat & Wool's Davison said.

To contact the reporter on this story: Gavin Evans in Wellington at gavinevans@bloomberg.net

Last Updated: May 14, 2008 01:44 EDT