Watch Input Prices, And Exchange Rate

Rabobank

Watch Input Prices, And Exchange Rate, Specialist Rural Banker Warns

FARM optimism has eased this spring, after levelling off over winter, according to the latest AC Nielsen/Rabobank Rural Confidence Survey.

Beef farmers in particular are feeling much more conservative.

But overall almost half the country’s primary producers are still positive about industry prospects in the next 12 months, and plan to increase farm investment.

Most still expect to make more money, although nearly all are braced for higher costs as well.

Bryan Inch, Rabobank national manager, rural, says while continued optimism in the farm sector is good news all round, the outlook for input prices in particular bears close attention.

And the influence of the New Zealand dollar must not be underestimated.

“General farmer optimism, the expectation of higher incomes and the outlook for input prices are all driven by the fact that the New Zealand dollar has hit record lows.

“We have to remain aware of that. And how sustainable is it? Good fortune – with the low dollar and favourable climatic conditions throughout most of the country – combined with good management are driving the confidence, however we could conceivably end up in trouble if the tide was to turn.’

Forty-nine percent of all farmers surveyed last month predict better agricultural performance in the next 12 months, down from 55 percent in the past two surveys.

The number of those planning to spend more on their properties remains stable – 44 percent.

Exactly three-quarters predict higher gross incomes, versus 72 percent in August, and 97 percent expect to pay more for inputs (94 percent in the last phase).

Again the biggest change has been in interest rate outlook, and Bryan Inch says that with farmers having budgeted on higher interest rates, the effect may be to partially offset the impact of higher farm input costs.

“The number of farmers who expect rates to rise in the next 12 months has dropped significantly from 94 percent in February 2000 to 57 percent now, while 39 percent predict no change (26 percent).”

Of the rural confidence survey sectors, dairy farmers retain the brightest outlook, with 66 percent anticipating better industry performance. That’s down five percent from August.

Dairying’s consistent positive outlook this year has been supported by recent industry events like the announcements of the payout intentions for the current season, Inch says.

Sheep farmers are next most confident (52 percent).

Beef farmers, very optimistic earlier this season, now feel their industry has stabilised – 28 percent say farm outlook will improve (46 percent), while 62 percent predict no change (50 percent)

The number of all farmers planning to spend more on stock, plant and land this year (44 percent) has now shown very little change for ten months since the survey started in February.

And dairy farmers are still most likely to spend more (50 percent), followed by beef, sheep and mixed farmers.

The outlook for gross incomes continues to trend up, and again dairy farmers lead the field - 88 percent expect to earn more followed by 77 percent of sheep farmers.

Higher costs are widely predicted across all farm sectors by up to 97 percent of respondents.

Overall interest rate outlook has dropped four times in a row and now 57 percent of farmers expect rates to rise in the next twelve months.

The AC Nielsen/Rabobank Rural Confidence survey is the first of its type in New Zealand and is a key barometer in understanding rural confidence. It is assessed bi-monthly, using AC Nielsen’s 1000-strong panel of farmers across the country.

Next results will be released in January.

ENDS

For further comment, and/or comparative data tables, please contact:

Bryan Inch Michael Hales Karen Newton
National Manager, Rural Marketing Manager Research Director
Rabobank New Zealand Ltd Rabobank New Zealand Ltd AC Nielsen
Wellington Wellington Auckland
04 462 5650 04 462 5650 09 488 3188
025 817 429 025 843 551

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