Favourable farmgate prices keep farmer confidence high

Media Release August 1, 2011 1

Favourable farmgate prices keep farmer confidence high, but elevated NZD looms

Results at a Glance

Farmer confidence has stabilised, remaining at similar high levels seen last quarter

Stability in confidence is being maintained by strong farmgate prices expected for the coming season

Confidence highest among sheep and beef farmers

The high New Zealand dollar continues to be of concern

High prices at the farmgate and favourable seasonal conditions have seen New Zealand farmer confidence remain strong moving into the second half of 2011.

The latest quarterly Rabobank Rural Confidence Survey, taken last month, shows net farmer confidence at 42 per cent, down just slightly from 45 per cent in the previous survey undertaken in March.

The number of farmers expecting the agricultural economy to improve over the next 12 months eased slightly to 48 per cent, compared to 52 per cent last survey, while those expecting conditions to worsen fell marginally.

Sheep and beef farmers were the most optimistic – with 49 per cent expecting conditions to improve – followed by 44 per cent of dairy farmers who think conditions will improve.

Rabobank general manager New Zealand Ben Russell said overall farmer confidence has plateaued yet remained at historically high levels, due mainly to expectations of favourable returns at the farmgate in coming months.

“Extreme weather experienced by farmers in the latter months of 2010 had understandably dampened farmer confidence, but it’s good to see things are now back on track and overall, the farming sector is looking positive,” Mr Russell said.

“At the time the survey was taken, the New Zealand dollar was sitting at approximately 80 cents, however it has since climbed – we’re now seeing this take the edge off the good returns being seen at the farmgate.”

Mr Russell said New Zealand producers are recognising their competitive pastoral advantage is starting to pay dividends in international markets due to the underlying global food demand, and this provides some overall reassurance/confidence for the agricultural industry.

Sheep and beef farmers’ optimism has been driven by record-high lamb prices currently being received.

“They’re also feeling positive about their farm businesses with 54 per cent expecting their business to improve over the coming 12 months, and sheep and beef farmers remain the most optimistic of all the farmers surveyed,” Mr Russell said.

The survey shows dairy farmer net confidence is supported at similar levels to the previous survey – increasing from 34 per cent to 40 per cent this quarter – due to the good opening milk price forecasts for the coming season and improved weather conditions.

Of those New Zealand farmers expecting the agricultural economy to improve, 68 per cent cited rising commodity prices as the reason – particularly dairy farmers (71 per cent) and horticulturalists (79 per cent).

Twenty four per cent attributed their positive outlook to overseas markets and economies, with respondents noting the global shortage of food and particularly protein as being a key driver of market returns.

Those surveyed also expected increased confidence in the agricultural sector, better management and efficiencies, both on-farm and with processors, to have a positive impact on the agricultural economy.

Farmer investment expectations have increased further, following a surge seen in the last survey. More than a third (36 per cent) expect to increase their total farm investment (up from 34 per cent last survey). This is the highest level since August 2008.

The number expecting to decrease investment remains unchanged at four per cent.

Mr Russell said the survey showed 38 per cent of sheep and beef farmers expected to increase their farm investment over the coming 12 months, with only four per cent expecting it to decrease. “This bodes well for stabilisation of the national sheep flock and indicates that some rebuilding of the flock will occur over the coming season,” he said.

Dairy farmers are also thinking about increasing investment again with 40 per cent expecting to up their farm business investment in the coming 12 months. However, horticulturalists are finding the current environment tougher with only 10 per cent expecting to increase investment and 24 per cent expecting to decrease investment in their business.

“This is likely to be a reflection of the high NZ dollar lowering returns for export growers and the challenges some kiwifruit growers are currently facing with Psa,” Mr Russell said.

Conducted since 2000, the Rabobank Rural Confidence Survey is administered by independent research agency TNS, interviewing a panel of approximately 450 farmers each quarter.

ENDS

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