Organisers of the Golden Shears say they are "very sad" to have had to cancel the event, which was scheduled to be held in Masterton later this week.
The decision was made in an emergency meeting on Sunday after the country moved to new COVID-19 alert levels over the weekend.
The event has been held every year since 1961.
Doug Laing, media officer at Shearing Sports New Zealand, said organisers were aware another lockdown was a possibility after the country moved alert levels once again in mid-February however the announcement of Saturday night "just blew everything apart".
He said in making the decision to cancel the event organisers took into consideration the possibility of a sudden return to level 1, but in the end the call had to be made to minimise financial risk and loss to the organisation, suppliers, competitors and supporters.
"It's such an iconic event and in all that time they've never had to cancel anything, not even with bad weather," Laing told Magic Talk's Rural Today.
More than 300 people had entered the competition, with many already in the region ahead of the event kicking off on Thursday.
Laing said entry fees and tickets to the event would be refunded.