New season farm confidence slips with OCR implications

New season farm confidence slips with OCR implications

Dairy farmer confidence ebbs while meat and fibre farmers remain positive

A slump in dairy farmers’ confidence has seen Federated Farmers’ new-season Farm Confidence Survey move into negative territory, with pessimists outnumbering optimists on prospects for the general economy and farm profitability.

“Commodity prices have fallen over the past few months, especially for dairy products, which are down over 30 percent since our last survey,” says Dr William Rolleston, Federated Farmers President.

“Given the New Zealand Dollar remains stubbornly high, exporters are not getting relief from it acting as a buffer to lower commodity prices. This is putting pressure on dairy farm incomes, albeit off a strong base from 2013/14’s near record season.

“Meat and Fibre farmers’ confidence has also slipped but remains positive, reflecting better international prices for sheepmeat, beef and wool. Beef+Lamb NZ figures show that the value of lamb exports is up by 10.5 percent, mutton 32.1 percent and beef and veal by 5.8 percent.

“Production was generally good during the 2013/14 season, bouncing back from last year’s severe drought. Most farmers expect to further increase production this season although some are concerned that El Nino may be an outlier for spring and summer.

“I must concede Federated Farmers New Season Farm Confidence Survey is in line with many recent business confidence surveys. There has been a pull-back in confidence levels, which is no surprise considering we are now in an environment of increasing interest rates.

“Farm businesses are particularly sensitive to higher interest rates, not just because the sector has high debt levels, but because higher interest rates underpin the strength of the New Zealand dollar which impacts farm incomes.

“It is of no surprise that farmers are more pessimistic than the overall business community, both in terms of the general economy and for their own businesses.

“Despite being more pessimistic about farm profitability this is yet to be reflected in farmers’ spending intentions. Most will still be making a profit so the pressure to ‘burn the chequebook,’ or whatever we call it in the age of internet banking, is somewhat lessened.

“Some may look to hold or increase spending to boost production in order to offset lower prices, while others might find it difficult to cut spending due to high farm input prices.

“Most farmers remain cautious about debt, with little change in the proportions of farmers expecting to increase, reduce, or hold debt at current levels. We found fewer dairy farmers expect to reduce debt levels but we found more meat & fibre farmers expecting to reduce debt.

“It is a continual theme but the agricultural labour market remains tight with farmers reporting greater difficulty finding skilled and motivated staff.

“Regulation and compliance costs remain the biggest issue for farmers, with considerable anxiety about the impact of policies being implemented by regional councils on water quality and water allocation.

“That anxiety extends to the cornucopia of policy now emerging from opposition parties. This is followed by the exchange rate and by debt, interest rates, and banks, both of which have moved up sharply in concern from January’s survey.

“Farmers’ highest priority for the Government is to focus on monetary policy, followed by compliance costs and fiscal policy.

“What came through more loudly than ever is a desire to see the Reserve Bank and Government do more to prevent interest rate increases and reduce the high, overvalued exchange rate.

“I guess you can say that in a big turnaround from recent surveys, dairy famers are the most pessimistic across all indicators while meat and fibre have become the most optimistic,” Dr Rolleston concluded.

The headline results from the Farm Confidence Survey:

§ A net 7.0 percent of respondents expect general economic conditions to worsen over the next 12 months.
§ A net 4.3 percent of respondents expect their own farm’s profitability to worsen over the next 12 months.
§ A net 43.9 percent of respondents expect to increase production over the next 12 months.
§ A net 12.9 percent of respondents expect to increase on-farm spending over the next 12 months.
§ A net 23.7 percent of respondents expect their farm debt to reduce over the next 12 months.
§ A net 21.0 percent of respondents found it harder to find skilled and motivated staff over the past six months.
§ Respondents’ biggest single concern was regulation and compliance costs, cited by 23.7 percent of respondents.
§ Respondents’ highest priority for government was monetary policy, cited by 19.6 percent of respondents.

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