Drought saps New Zealand farmer confidence

Drought saps New Zealand farmer confidence

Results at a Glance

- Rural confidence has declined significantly in the latest survey period.
- Dairy farmer confidence has fallen the most sharply of all the sectors.
- Beef and sheep farmer confidence has also experienced significant falls.
- One third of farmers expect farm incomes to drop.

Dry weather conditions and a high Kiwi dollar have seen a sharp decline recorded in the latest New Zealand farmer confidence levels.

The latest bi-monthly Rabobank/Nielsen Rural Confidence Survey – taken across New Zealand last month – showed the number of farmers expecting the rural economy to worsen in the coming months had climbed to 38 per cent, compared to 22 per cent in the previous survey. Just 15 per cent of farmers surveyed expected the economy to improve, a significant drop from 34 per cent who had an optimistic outlook last survey.

These results follow the previous survey – taken in December last year – which had shown the first downturn in rural confidence levels seen in New Zealand in 12 months.

Rabobank general manager Rural New Zealand Ben Russell said key drivers of the decline in confidence were prolonged drought afflicting many parts of the country and the strengthening exchange rate. Easing dairy commodity prices were also influencing dairy farmer sentiment.

Dairy farmer confidence had fallen the most sharply out of all farmers surveyed. Only 15 per cent of dairy producers expected the economy to improve (compared to 59 per cent in the previous survey), while 31 per cent expected conditions to worsen (up from just six per cent previously).

Mr Russell said while payout expectations remain firm for the nation’s dairy farmers, the easing in international dairy commodity prices – coupled with drought and the high exchange rate – would be impacting sentiment.

“International dairy commodity prices have declined by around three per cent since the end of 2007, although drops have been sharper for skim milk powder,” Mr Russell said. “However, in New Zealand dollar terms the reduction has been greater, at close to 10 per cent.”

Mr Russell said the dry weather in many parts of the country was negatively impacting rural confidence in all sectors, but particularly beef.

Beef farmer confidence also fell significantly, with 45 per cent expecting the rural economy to worsen (compared to 29 per cent in the previous survey) and only nine per cent expecting conditions to improve (down from 20 per cent previously).

“The drop in beef farmer confidence is likely to be closely linked to weather conditions, which have been extremely dry in many key beef-growing regions, particularly in the North Island”, he said. “Lacklustre pricing due to the currency is also an issue for the beef sector.”

Mr Russell noted that February is traditionally a low point for sheep and beef farmer confidence as farm gate prices are typically lowest during the peak part of the processing season when stock throughput is plentiful.

The strengthening New Zealand dollar was also taking its toll on farmers, particularly when it has been at or above the US 80 cent mark.

“The strengthening exchange rate we have seen in the past two months has been dampening returns from farm exports,” he said. “And with little prospect of the currency easing in the near future, this is having a significant impact on farmer confidence.”

The latest Rabobank/Nielsen survey showed that farmers’ income expectations had also declined further from a drop recorded in the previous survey. Overall, more than one third (37 per cent) of producers expected their gross farm incomes to decrease in the coming 12 months. This compared to 27 per cent with that expectation last survey and only 15 per cent in the survey taken in October 2007. However, the majority of farmers are expecting to maintain or increase their farm income over the next year with 31 per cent anticipating an increase and a further 31 per cent expecting no change.

Beef and sheep farmers were particularly pessimistic about their earnings outlook. Nearly half of beef farmers (49 per cent) expected lower incomes, with 45 per cent of sheep farmers also having that expectation.

Dairy farmers have also moderated their income expectations given commodity prices and climatic conditions. While 49 per cent of dairy farmers anticipated higher incomes over the coming 12 months, this is a reduction from 83 per cent in the last survey and 93 per cent in the October survey.

Mr Russell said income expectations were generally shown to be lower in regions that had been impacted by dry conditions, with more farmers in Waikato, King Country, East Coast and Taranaki expecting lower incomes than in other regions.

Overall, farmers’ investment intentions were also down, with one fifth of the country’s farmers expecting to reduce their on-farm investment over the next 12 months, although most farmers (60 per cent) intend to hold their current investment levels. More than a quarter of sheep and beef farmers expect to reduce investment in their farm businesses.

The latest survey also showed farmers are not expecting a reprieve from the current high interest rate environment any time soon. A total of 45 per cent of farmers are expecting a further increase in rates in the coming 12 months, while only five per cent are expecting rates to ease.

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The bi-monthly Rabobank/Nielsen Rural Confidence Survey is the only study of its type in New Zealand. A panel of 752 farmers across New Zealand was surveyed in the last survey period.

Rabobank New Zealand is a part of the international Rabobank Group, the world's leading specialist in food and agribusiness banking. Rabobank has more than 100 years' experience providing customised banking and finance solutions to businesses involved in all aspects of food and agribusiness. Rabobank has a AAA credit rating and is ranked one of the world’s safest banks by Global Finance magazine. Rabobank operates in 42 countries, servicing the needs of more than nine million clients worldwide through a network of more than 1500 offices and branches. Rabobank New Zealand is one of the leading rural lenders and a significant provider of business and corporate banking and financial services to the New Zealand food and agribusiness sector. The bank has 29 branches throughout New Zealand.

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