New Confidence in New Zealand

NEW ZEALAND - According to a survey farmer confidence in New Zealnad has staged a dramatic improvement on the levels seen in the first half of 2008, seeing optimistic dairy farmers, boosted beef expectations and real belief in income rise.
calendar icon 22 September 2008
clock icon 4 minute read

The survey – conducted across New Zealand by Rabobank/Nielsen Rural – showed the number of farmers expecting the rural economy to improve had leapt to 59 per cent, compared to just 18 per cent who had that expectation back in April this year, at the time of the previous survey. The number expecting economic conditions to worsen had fallen from 37 per cent to just seven per cent.

Rabobank general manager Rural New Zealand Ben Russell said improved agricultural returns and considerable falls in the New Zealand exchange rate were likely to have been major drivers behind the big turnaround witnessed in farmer confidence.

Mr Russell said it was noteworthy that the turnaround in farmer confidence came at a time when the overall New Zealand economy was showing significant signs of slowing.

“Improved export returns have been evident across most agricultural sectors, while there has also been a considerable fall in the New Zealand dollar/US dollar exchange rate in recent months, which is good news for farm gate returns,” he said.

“As the New Zealand economy moves into a cycle of lowering interest rates, the associated weaker New Zealand dollar is likely to further buoy the outlook of farmers.”

Mr Russell also noted that New Zealand farmers typically registered a “spring boost to confidence” at this time of the year.

“Typically, the surveys show that farmer confidence is highest around this time of the year as the new season gets underway,” he said

In addition, he said, the prospect of a strong recovery from the adverse climatic conditions experienced during 2007 and early 2008 in many parts of New Zealand would also be adding to farmer confidence levels entering the 2008/09 production season.

Sheep and beef farmers have recorded a very large boost in confidence. However, Mr Russell said, it should be noted that sheep and beef farmer confidence was coming off a very low base, with particularly subdued confidence levels recorded previously.

A total of 67 per cent of sheep and beef farmers now expect an improvement in the agricultural economy in the next 12 months, compared to only 19 per cent in the previous survey.

“This is likely to reflect the fact that farm gate prices for sheep and beef have lifted considerably since May and have been trending significantly above the same period last year,” Mr Russell said. “Many farmers are also recognising that tighter supply and availability of livestock will improve prices over the coming season.”

Dairy farmer confidence also remained high, with 49 per cent expecting an improvement in the agricultural economy and only seven per cent expecting economic conditions to worsen.

The latest Rabobank/Nielsen survey showed that farmers’ income expectations had improved, with 45 per cent expecting their gross farm incomes to increase over the next 12 months (compared to 31 per cent in the previous survey) and only 12 per cent expecting incomes to fall (compared to 41 per cent previously).

Farmers’ investment intentions also increased – 39 per cent expecting to increase their on-farm investment over the coming year (up from just 18 per cent previously). Only 11 per cent reported that they expected to decrease their level of investment (compared to 20 per cent previously).

The survey showed most farmers expect the trend in easing of interest rates to continue. The majority (52 per cent) said they expected lower interest rates over the coming months, compared to 16 per cent who had that expectation in the previous survey. Only 16 per cent expected interest rates

to increase. Mr Russell said the signals from the Reserve Bank of New Zealand’s lowering of the official cash rate in July for the first time in five years – and then again last week – and expectations of further reductions have clearly been heeded by the rural sector.

“The Reserve Bank’s decision last week to further reduce rates by a greater-than-expected 50 basis points in a bid to stimulate economic activity is further good news for the farm sector,” he said.

This survey, farmers were also asked whether the recent global financial market turmoil would impact their farm businesses. A total of 43 per cent did expect financial sector issues to have an impact on their operations. Of these, 18 per cent expected to see input price rises as a result. A further 10 per cent expected to see an impact on revenue and/or profitability through softening commodity prices and/or softening demand as a result of financial sector issues. Meanwhile, eight per cent expected a decrease in spending as consumer cost cutting occurred and expenditure came under increased scrutiny throughout the economy.

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