Dairy farmers shake off dollar woes

Dairy farmers shake off dollar woes with rise in confidence

A stark contrast in confidence has emerged among New Zealand farmers in recent weeks, with strong optimism returning among dairy farmers, despite a climbing New Zealand dollar, while confidence continues to fall among beef and sheep farmers.

Overall, the latest Rabobank/Nielsen Rural Confidence Survey, taken in April, found that 22 per cent of farmers expect the rural economy to improve in the next 12 months – although at low levels, still a notable increase on the only nine per cent who had that expectation in the previous survey.

The number of farmers expecting economic conditions to worsen remained the same at 43 per cent.

This is the first time there has been an increase in rural confidence since August 2006, according to Rabobank general manager Rural New Zealand Ben Russell.

Mr Russell said the latest survey showed a significant disparity in confidence levels among different farming sectors.

Dairy farmers’ confidence had leapt, with 48 per cent expecting conditions to improve compared to just 12 per cent in the previous survey, but the outlook among sheep and beef farmers had continued to worsen.

“While the survey was taken before Fonterra’s announcement last week of an increased payout to dairy producers, it is clear that the surveyed farmers were well aware of the impact that record dairy commodity prices would have and that they had an expectation of improved returns,” Mr Russell said.

Last Friday, Fonterra announced the payout would increase by 20 cents per kilogram of milk solids, while indicating the payout was likely to be at least $5 for next season.

Sheep and beef farmers, on the other hand, were impacted by concerns about low farm gate schedule prices, adding to the impact of climbing interest rates and a high New Zealand dollar.

Of the sheep farmers surveyed, 65 per cent expected the rural economy to worsen in the next 12 months (up from 57 per cent with that expectation last survey). Only seven per cent expected an improvement.

A total of 48 per cent of beef producers expected a decline in the economy, up from 40 per cent last survey. Only 15 per cent expected conditions to improve.

Mr Russell said it was the first time in the survey’s seven-year history that confidence had moved so strongly in different directions in the key agricultural sectors.

“This outcome is not surprising considering the outlook in international commodity markets has changed so dramatically for dairy, with prices accelerating sharply to record high levels, while international sheep and beef markets have been relatively flat and therefore have been dampened by the strong NZ dollar,” he said.

Mr Russell said Rabobank retained strong confidence in the longer-term outlook for both the beef and sheep industries.

“The current forces driving down the lamb schedule in particular are primarily short-term – the high New Zealand dollar and a record Australian lamb slaughter due to the protracted Australian drought. While cash flows remain very tight currently, our expectation is for improved market conditions later this year and into 2008.”

The survey showed farmers’ income expectations mirrored confidence levels. A majority of dairy farmers (69 per cent) expect their incomes to rise over the next 12 months, compared to 29 per cent the previous survey. Conversely, 63 per cent of sheep producers and 43 per cent of beef farmers expect their incomes to fall (up from 59 per cent and 33 per cent respectively last survey).

Investment intentions reflected the difference in sectors, with 93 per cent of dairy farmers expecting to maintain or increase their level of farm investment in the next 12 months. However, 30 per cent of sheep farmers and 22 per cent of beef farmers expected to decrease their investment.

Mr Russell said this was a departure from recent surveys when investment intentions had remained more robust when headline confidence was down.

Although pre-dating the latest Reserve Bank interest rate rise, the survey found a marked increase in the number of farmers expecting rates to climb - 80 per cent compared to 53 per cent the previous survey.

The Rabobank/Nielsen Rural Confidence Survey is the only study of its type in New Zealand. Conducted bi-monthly, a panel of approximately 785 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 43 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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