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Dairy farmers pack a sad as horticulturalists become more cheerful

Friday 7th December 2018

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Farmers are becoming increasingly pessimistic about economic conditions in the year ahead with government policy concerns, falling commodity prices and rising costs being key reasons, according to Rabobank’s latest survey.

Its farming confidence index fell to negative 15 percent from negative 3 percent in its September survey and this is the third consecutive quarter that it has declined.

Farmers’ confidence in their own farm’s performance remains in positive territory with 26 percent expecting an improvement in the next 12 months, down from 34 percent last quarter, and 19 percent expecting their farm’s performance to worsen, up from 13 percent.

The deteriorating outlook was due to increasing pessimism among to dairy, sheep and beef farmers while those with horticultural operations flipped from negative to positive, rising from a net 4 percent being pessimistic in the last survey to 9 percent being optimistic.

Horticulturalists are even more positive about the outlook for their own farms with a net 34 percent expecting an improvement in the next 12 months, up from 26 percent three months ago.

However, sentiment among dairy farmers dropped to a net 21 percent being pessimistic from 9 percent three months ago and sheep and beef farmers dropping to a net 12 percent being pessimistic from a net 7 percent being optimistic in the last survey.

“In both of New Zealand’s key pastoral sectors there are now more farmers expecting conditions in the agricultural economy to worsen in the company year than those expecting an improvement, and this is the first time we’ve seen this since quarter one, 2016,” said Rabobank general manager Hayley Gourley.

“This is particularly unusual during a period where product prices are at good levels and the climate has generally been favourable for most producers,” Gourley said.

“Rather than one single factor driving confidence lower, the survey results indicate a range of factors are responsible.”

Concerns about government policy was the most common reason for the deteriorating outlook, cited by 45 percent of those surveyed with falling commodity prices cited by 37 percent and rising input costs by 28 percent.

A further 27 percent are concerned about conditions in overseas markets.

“Almost half of dairy farmers expecting conditions to worsen cited falling commodity prices as a key factor with this likely to have been driven by lower pricing at recent GlobalDairyTrade events and Fonterra’s downward revision of their 2018/19 forecast farmgate milk price in October,” Gourley said.

Fonterra cut its expected 2018/19 payout forecast to $6.25-6.50 per kilogram of milk solids from $6.75/kgMS in October.

Pointing to likely even more pessimism amongst dairy farmers, Fonterra cut that forecast again earlier this week to $6-6.30/kgMS.

“Farmers from both pastoral sectors were also more concerned about rising farm input costs which have increased over recent months as a result of spiralling global urea prices that have increased local prices to $165 a tonne,” Gourley said.

“In addition to these factors, the verbatim comments collected in the survey suggest Fonterra’s recent performance issues and Mycoplasma bovis are further areas of concern for farmers,” she said.

Gourley attributes the improving sentiment among horticulturalists to both strong demand internationally and to the conclusion of the Comprehensive Progressive Trans-Pacific Partnership trade agreement.

“In particular, growers will benefit via the Free Trade Agreement with Japan included as part of the CTTP.” That’s set to be implemented on Dec. 30 of this year and will create a level playing field with other exporters such as Australia and Chile which already have FTAs in place with Japan.

Across all farmers, investment intentions have deteriorated as well with a net 24 percent expecting to invest more in the coming year, down from 26 percent three months ago, and 12 percent are expecting to reduce investment, up from 9 percent.

Dairy farmers’ appetite for investment has declined the most but 40 percent of horticulturalists are expecting to increase investment and only 2 percent are expecting to invest less.

The survey, which has been running since 2003, interviews about 450 farmers each quarter.


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