Drought Shakes National Farm Outlook

FARM confidence has eased for almost all rural sectors this winter, and an increasing number of farmers expect to earn less in the coming year.

This follows prolonged autumn drought, winter feed shortages and continued economic pessimism in our main export markets.

Two-thirds of New Zealand farmers are not picking an improvement over the next 12 months and 15 per cent expect to see their incomes drop.

But more than 90 per cent say they will still spend the same or more on their businesses in the coming season.

That’s according to the latest AC Nielsen/Rabobank Rural Confidence Survey, the nation’s only bi-monthly snapshot of our rural sector.

Taken in July, the survey shows farming regions on the east coasts of both islands are now clearly feeling the impact of difficult seasonal conditions.

“Expectations of agricultural performance, total business investment and gross farm income have all taken a knock in these areas,” says Rabobank managing director Bryan Inch.

Only 30 per cent of all farmers now expect farming to improve in the coming year, down from 42 per cent in January, while 65 per cent predict no change.

Bryan Inch says the slide is not surprising, given the real high that the rural sector has been experiencing – with high product prices, a favourable New Zealand Dollar and low interest rates.

Even so, the number of all farmers who expect to invest more in stock, plant and land over the next 12 months remains very consistent at 37 per cent, and only 6 per cent saying they will spend less, sheep farmers in particular are more likely to invest than in the previous survey.

“Thirty seven per cent of sheep farmers now expect to spend more, up from 29 per cent in the last survey. Some of this increase will be driven by the need to redevelop pastures and restock following the drought”

And in the sectors where there aren’t any planned increases in spending, the shift is mostly in favour of maintaining investment at current levels, he says.

The number of those who plan to tighten spending is back in single figures for all sectors, and currently sits at just six per cent overall.

“This isn’t surprising, as we are seeing ongoing maintenance programs that take advantage of the improved returns farmers have been getting over the last twelve months” said Bryan Inch.

However there has been a slow, but steady rise in the number of farmers who think their incomes may have peaked.

“Fifty per cent expect better incomes, down from 53 per cent last survey, while 37 per cent expect no change (34 per cent). Clearly farmers now feel income levels have plateaued after the relatively high earnings of last year, although lost production and reduced stock numbers will obviously have a major influence in this area for farmers affected by drought,” Bryan Inch says.

Dairy farmers are also less optimistic – 55 per cent say they will earn more, down from 63 per cent in May and 73 per cent in March.

“Dairy farmers are obviously adopting a ‘wait and see’ approach to the impact GlobalCo will have on their sector. They have also just experienced the record payout of last season and while convinced of the longer term benefits of GlobalCo, are uncertain what benefits the mega-merger will generate down to the farm gate in the short-term” Bryan Inch says.

Virtually all farmers still expect to pay more or the same for farm inputs in the coming year, and these figures show little change from the previous two surveys.

Interest rate expectations, however, have swung again – 18 per cent of all farmers predict rates will drop – down from 27 per cent in May.

Sheep and beef farmers are least optimistic – 22 and 20 per cent respectively now say rates will rise, compared with only seven per cent of cropping farmers.

The AC Nielsen/Rabobank Rural Confidence Indicator is the first survey of its type in New Zealand, and uses AC Nielsen’s 1000-strong panel of farmers across the country.

Next results will be released in October.

ENDS

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