Farmer optimism declines with climbing NZ dollar

A four and a half per cent increase in the value of the New Zealand dollar against the US dollar in two months has strongly impacted on farmer confidence in the economy. Confidence levels have fallen from a two-year high in August. Sixty-two per cent of farmers believe the economy will stay the same with only 19 per cent anticipating improvement, compared with 32 per cent anticipating improvement in the last survey.

The latest Rabobank/AC Nielsen Rural Confidence Survey, which was conducted during the first two weeks in October, confirms the strong relationship between exchange rate and rural confidence.

Ben Russell, General Manager Rabobank NZ said the results of this survey emphasise how much a strengthening New Zealand dollar impacts on the rural sector. “Over the last two months dairy farmers have had a warning from Fonterra that the $4.05 payout was calculated on a New Zealand dollar valued at USD 0.61 and may not be sustainable. Meat companies have noted similar concerns on beef and lamb prices. We need to keep remembering that 90 per cent of most agricultural products we produce are for export,” he says.

“This is not just a US dollar phenomenon. The value of the NZ dollar has appreciated more against other currencies. The dollar has strengthened against the yen by almost seven per cent; around six per cent against the euro; and, five per cent against the British pound. New Zealand agricultural products go to markets around the world and there is no currency relief in any.”

The increasing value of the New Zealand dollar is driven, in part, by high interest rates in relationship to those in other developed countries. In the October announcement on the Official Cash Rate (OCR) from the Reserve Bank it stated that the outlook for inflation had improved due to “lower fuel prices, together with the recent rebound in exchange rate, and Statistics New Zealand’s reweighting of the CPI.” As a result the OCR remained unchanged at 7.25 per cent. The Reserve Bank is still predicting a softening in the New Zealand dollar in the medium term. The dollar has been over USD 0.60 since October 2003.

There is one indicator in the survey that suggests farmers may have a more positive view in the medium term. Investment intentions remained firm for sheep and dairy farmers, with only beef showing a small decline.

Mr Russell says more farmers are looking at increasing the capital in their business in the next 12 months which does suggest that the outlook is better than it has been previously. “We are noting some softening in interest in properties for sale. Good quality properties, close to towns, are still selling quickly and at prices equivalent to, if not better than, last year. Others in more remote locations are sometimes attracting little interest and are being withdrawn from sale. Farmers appear to be cautious at the present,” he says.

The Rabobank/AC Nielsen Rural Confidence Survey is the only study of its type in New Zealand and surveys a panel of more than 800 farmers across New Zealand. The survey is conducted bi-monthly, with the next due for release in January 2007.

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 the world’s safest private bank 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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