Further Fall In NZ Farmer Confidence

Strengthening Dollar Sees Further Fall In NZ Farmer Confidence

Results at a Glance:

• Farmer confidence has declined for the second survey running, impacted by strengthening NZ dollar and a mixed outlook for rural commodities.
• More than one third of farmers now expect rural economy to worsen.
• Biggest confidence declines among sheep farmers, followed by dairy producers.
• Farmer income expectations also down, though investment intentions have remained stable.

The sharp rise in the New Zealand dollar late last year, combined with a mixed outlook for local commodity prices, has seen farmer confidence levels continue to decline. The latest Rabobank AC Nielsen Rural Confidence Survey shows more than one third of all farmers now expect the rural economy to worsen over the coming 12 months.

It is the second survey in a row where farmers have registered a decline in confidence.

The survey, which was conducted in December, showed 37 per cent of farmers expect the rural economy to worsen over the next year, compared with 18 per cent with that expectation in the previous survey in October 2006. Only 11 per cent expect the rural economy to improve.

General manager Rabobank Rural NZ Ben Russell said the continuing fall in farmer confidence was likely to reflect the sharp increase in the New Zealand dollar in late 2006. The NZ dollar appreciated an average three cents from October to December, at one point pushing back up to US 70 cents.

“The survey was also taken at a time when there was quite a high expectation of a further interest rate increase,” he said. “This would have contributed to the higher dollar and also raised fears of higher interest rate payments.

“Recent economic data, particularly a fall in the December quarter Consumer Price Index, has lowered the likelihood of the Reserve Bank of New Zealand increasing interest rates at its next board meeting.”

Mr Russell said farmers were preparing for a year of relatively tight cash flows, driven by a mixed outlook for commodity prices, continued increases in input prices, and little relief in sight from the combination of high interest rates and a high New Zealand dollar.

“These factors, combined with continued high rural land prices, saw the level of rural debt growth in New Zealand slow significantly during the second half of 2006, a trend we would expect to continue during 2007,” he said.

Mr Russell said the latest Rabobank Rural Confidence Survey had shown the biggest confidence decline was in sheep farmers (with 43 per cent now expecting the rural economy to worsen compared to 14 per cent last survey, followed by beef farmers (35 per cent compared to 16 per cent previously).

“Sheep and beef farmers were watching the seasonal fall in the price schedules, which were moving sharply downwards,” he said.

In line with the drop in confidence, the survey showed that 38 per cent of farmers also expected their farm incomes to fall in the next 12 months, with dairy, followed by sheep, farmers the most pessimistic about income outlook.

Only 25 per cent of New Zealand farmers expect higher incomes in the next 12 months.
Investment intentions, however, remain remarkably stable considering the perceived economic outlook, Mr Russell said.

“Investment intentions are down a little, but 85 per cent of farmers are still expecting to maintain or increase investment in their farm businesses, reflecting stable long-term confidence that further on-farm investments will generate acceptable returns” he said.

Similarly, there was little change registered in farmers’ expectations for input costs. Lower fuel prices in the latter months of 2006 had not been reflected in an easing of concern about costs, with 77 per cent of farmers indicating they expected their expenses to rise.

In relation to interest rates, 61 per cent of farmers expect no change, while approximately a third expect an increase.

The Rabobank/AC Nielsen Rural Confidence Survey is the only study of its type in New Zealand and surveys a panel of more than 800 farmers across New Zealand. The survey is conducted bi-monthly.

ENDS

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