Lamb prices have dropped to levels not seen for six years, taking more than 20 percent off sheep farmers' incomes.

Lamb schedules have fallen in recent weeks with some companies now offering just $6.50 a kilo - having been $8.30 two seasons ago, and $7.20 last year.

The drop is being put down to continued soft demand from key markets like China - and an influx of Australian lamb flooding markets.

Manawatū based Baker Ag consultant Gary Massicks said the drop was predicted 6 months ago, but it had been much "harder and faster" than anyone expected.

Normally, prices held up until about March when more lambs came onto the market, he said.

"The situation is scary and farm budgets are in the red, and this is all at a time when farmers have more lambs on the ground and could maybe have hoped to capitalise on that."

A large number of ewes had twins this season because they went to the ram in top condition, but twin lambs are smaller than a good strong single.

"The flip side is we have more lambs, but doing a couple of numbers with a couple of clients, the more lambs don't make up for the drop in price. So 20 percent (drop) on income, this one (budget) in front of me, store lambs last year were $110, we're forecasting less than $90 this season, so you know dropping income 20 to 25 percent you've got a lot of red numbers in the budget."

Asked if there was light in the future, Massicks said there was always hope.

Dairy seemed to be picking up again and sheep and beef often followed the dairy trend, but he said the light, when it came, would not be until next winter and it was "not a very strong light". There was a lot to get through before next winter, he said.

"It's gloomy and something many people are talking about, but we're saying to clients 'stay in the fight'. Decisions need to be well made so next year's production isn't compromised.

"Let's start thinking about that already, and meanwhile try and sell every lamb we can."

Farmers who reared lambs for finishing often had a "get out of jail" card where if lamb prices were lower, or they were running fewer young stock, they would sell surplus grass as silage, he said.

But he said this year dairy farmers did not need the silage and did not have the cash to purchase it anyway.

Farmers look for areas to save

Marlborough farmer Richard Dawkins said people were comparing it to the big downturn in the 80s.

"It's very demoralising to be honest, we're just sorting our first lot of lambs now they go to the works on Wednesday and we're getting around the mid $6 dollar mark so its very challenging."

Dawkins, also the meat and wool chairperson for Marlborough Federated Farmers, said he had not seen such a downturn since he moved back to the farm in 2015.

"All farm businesses are different but people will be watching their expenditure, the problem is with increased costs and higher interest rates farmers are already running a trim business model as it is - so there's not many areas where money can be saved.

"I'm hearing that a lot of people are moving to interest only on their loan repayments, because it's hard to cut costs without compromising on performance.

"It's important to remember not everyone is in the same boat - the impact of the falling price will depend on the individual financial situation, if you don't have a high debt loading, you're probably not as exposed with the high interest rate."

Some farmers have other income streams, such as in Marlborough, where farmers had dipped their toes into viticulture and horticulture, which helped with cash flow, Dawkins said.

"We just need to be mindful of those who are struggling - there will be younger farmers who have borrowed a bunch of money, they'll be leasing the farm and it's their only source of income, they'll be doing it tough.

"It's a good time to highlight the importance of people having time to themselves, we hear a lot about getting off the farm and socialising but that's not for everyone, so whatever you enjoy if its fishing or hunting - just make sure you have time to do that in these tough times."

This story was originally published by RNZ