Farmer confidence declines

Farmer confidence declines as interest rates and NZ dollar climb

The expectation of a climb in interest rates, an unrelenting New Zealand dollar and falling lamb prices have seen farmer confidence levels continue to decline. The latest Rabobank/Nielsen Rural Confidence Survey shows 43 per cent of all farmers now expect the rural economy to worsen over the coming 12 months compared to 37 per cent in the previous survey.

It is the third survey in a row where farmers have registered a decline in confidence. However, General Manager Rabobank Rural NZ Ben Russell said the outlook is still far better than in February last year when 75 per cent of all farmers expected the rural economy to worsen.

The survey shows that only nine per cent of all farmers expect an improvement in the rural economy, down from 11 per cent in December.

Mr Russell said that the continuing fall in farmer confidence was likely to reflect a number of factors which are currently placing pressure on New Zealand farmers. The New Zealand dollar had strengthened in early 2007 to around US 70 cents and interest rates were moving upwards.

“The survey was conducted leading up to the latest interest rate rise by the Reserve Bank of New Zealand, something that the results show many farmers rightly anticipated. The possibility of higher interest rate payments, and the impact this will have on the dollar, were certainly weighing on farmers at the time the survey was taken,” he said.

Mr Russell said farmers were preparing for a year with little relief from interest rate pressure - 53 per cent of all farmers expecting further increases, with only four per cent expecting any relief.

A mixed outlook for commodity prices is also continuing to impact confidence, with the biggest confidence decline seen in sheep farmers – 57 per cent expecting the agricultural economy to worsen over the next 12 months, compared to 43 per cent previously.

“The falling lamb prices and expectation that prices will fall further is likely to be the biggest contributor to the drop in sheep farmer confidence over the last survey period – particularly given it’s the peak selling period for lambs and many farmers will be sending lambs for processing,” Mr Russell said, adding that compared to this time last year, sheep farmers are more optimistic.

The latest Rabobank Rural Confidence Survey had shown that the second biggest confidence decline occurred among beef producers, with 40 per cent of beef farmers also pessimistic, compared to 35 per cent previously.

Mr Russell said the decline in beef producer confidence was more difficult to explain.

“The fall in sheep farmer confidence can be logically linked to a drop in prices at this key selling time, however the decline in beef farmer confidence is a little more curious as prices and outlook are still good,” he said. “It could well be because most beef farmers also farm sheep and are therefore likely to be infected by pessimism in the sheep sector.”

Dairy farmers are the only group to have improved their outlook over the last survey period, following Fonterra lifting the payout by 10c per kg of milk solids in early February. While seven per cent fewer dairy farmers are now expecting conditions to worsen, most of these are expecting conditions to remain the same and only an additional one per cent are expecting an improvement.

Overall investment intentions across all sectors were relatively stable, with 18 per cent of farmers expecting to increase their total investment over the next 12 months and 64 per cent not intending to change their level of farm investment. The largest decline in investment intentions was amongst sheep farmers with a quarter of these expecting to decrease their total investment over the next 12 months, compared to 16 per cent in December.

In line with the drop in headline confidence, the survey showed that 77 per cent of farmers expect their farm income to decrease or stay the same. However, 77 per cent also expect an increase in costs over the coming 12 months, something Mr Russell says will have substantial implications for farm spending and the agricultural service industries.

While short term conditions in the major agricultural sectors are testing most farmers, Rabobank remains confident that the medium to long term supply and demand factors for dairy, beef and lamb remain positive, Mr Russell said.

“It is frustrating for farmers to not see this good demand profile reflected in the farm gate prices they are seeing at present, due to the impact of the high New Zealand dollar,” he said.

The Rabobank/Nielsen Rural Confidence Survey is the only study of its type in New Zealand. Conducted bi-monthly, a panel of approximately 790 farmers across New Zealand were 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 38 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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