Spring fuels rally in NZ farmer confidence

Media Release September 22, 2009 1

Spring fuels rally in NZ farmer confidence

New Zealand rural confidence has staged a rally on the back of a good start to spring growing conditions. However, farmer sentiment remains at low levels, held back by concerns about the rising dollar and volatile commodity prices, according to the latest quarterly Rabobank Rural Confidence Survey.

The survey – conducted across New Zealand last month – shows 22 per cent of the country’s farmers expect the rural economy to improve in the next 12 months, a marked increase from the only 12 per cent who had that expectation in the previous quarter.

And while 25 per cent of farmers still expect conditions to worsen, this was a big drop on the 49 per cent with that view in the previous survey. This latest rise in confidence follows three previous consecutive declines.

Rabobank general manager Rural New Zealand Ben Russell said, while spring was typically a time when New Zealand farmers were at their most optimistic, this year sentiment had not made it back into net positive territory, with more farmers still expecting conditions to worsen than the number expecting conditions to improve.

“While there has been a good start to spring growing conditions across most of the country, this hasn’t served to outweigh market factors – such as the high NZ dollar, volatile commodity prices and concerns about the global economy – which are impacting to constrain farmer sentiment,” he said.

Of those farmers surveyed who expected conditions to worsen, the rising New Zealand dollar was the biggest concern (cited by 57 per cent), while uncertainty over commodity prices was nominated by 30 per cent and overseas markets/economies by 29 per cent.

Mr Russell said concerns about commodity prices and overseas markets had, however, eased compared to the previous quarter, when 47 per cent and 42 per cent respectively had cited these as a reason for their worsening outlook.

Results at a Glance Farmer confidence has increased for the first time in 12 months.

Sentiment, however, remains constrained by concerns about the rising dollar and volatile commodity prices Dairy producers are back to being the most optimistic farm sector, though confidence also improved in beef and sheep farmers.

Farmer investment intentions remain robust with 80% expecting to increase or maintain their farm business investment.

Concern about the dollar though had sky-rocketed, particularly compared to six months previously when only nine per cent of NZ farmers expecting conditions to decline had expressed currency worries.

“While stronger US dollar, or other offshore, pricing for commodities had become evident over the past quarter as world economies improved,” Mr Russell said, “New Zealand dollar farm gate prices for dairy, beef and lamb have been virtually unchanged as the NZ currency has moved higher.”

Mr Russell said this subdued pricing was particularly evident in beef, lamb and venison prices which were usually at their seasonal peak now, but have been very flat or easing. The survey showed dairy farmers had returned to being the most positive of all the sectors, and the only group with a net positive outlook, with more dairy producers expecting economic conditions to improve than those expecting conditions to worsen.

“The survey took place between the two global dairy trade auctions, after the first increase of 25 per cent for whole milk powder (WMP), but before the most recent auction that recorded further 24 per cent increase,” Mr Russell noted.

Sheep and beef farmer sentiment had also improved, with 21 per cent expecting economic conditions to improve (compared to 13 per cent last survey). And, although 30 per cent of sheep and beef producers still expected conditions to worsen, this was a significant decrease on the 44 per cent with that expectation previously.

Horticultural producers had lower expectations of the agricultural economy, and their own business performances, over the coming year, with more than half (60 per cent) of those with a pessimistic view citing the higher NZ dollar as their main concern.

The latest Rabobank Rural Confidence Survey showed New Zealand farmers’ investment intentions were robust, with 80 per cent expecting to maintain or increase their farm business investment, up from 74 per cent previously.

Mr Russell said sheep and beef farmers had the strongest and most stable investment intentions. Dairy farmers had also reversed the previous trend – seen last survey – to decrease their investment.

“This survey, only 28 per cent of dairy producers indicated they intended to decrease their total investment in their farm business. This was a reduction from 42 per cent with that view last survey and is likely to reflect their improved confidence levels and the impact of lower interest rates on farm investment,” Mr Russell said.

Questioned on the topic of land values, 49 per cent of farmers expected the value of their land to stay the same in the coming 12 months, with 35 per cent expecting a decrease and 13 per cent an increase. However, the magnitude of change was expected to be modest. The majority of farmers expecting land values to decrease anticipated the move to be less than 10 per cent, while only one per cent of all farmers surveyed expected their land values to increase by more than 10 per cent.

Mr Russell said dairy farmers expected to see the greatest land value adjustment, with nearly half expecting a decline in land values. “This is likely to reflect an expected easing from the significant increase in dairy land values seen up until 2008,” he said, “however 41 per cent still expect values to stay the same.” Conducted since 2003, the Rabobank Rural Confidence Survey is the only study of its type in New Zealand. The survey is administered by independent research agency TNS Conversa,

interviewing a panel of approximately 450 farmers each quarter.

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