NZ farmer confidence slips ahead of new season amid declining prices, adverse weather

Wednesday 15th July 2015

New Zealand farmer confidence slipped heading into the new season, with economic conditions and profits expected to deteriorate, as farmers plan to spend less and increase debt.

A net 28.2 percent of farmers expect general economic conditions to worsen over the next 12 months, the worst level in three years, and a deterioration from a net 19.2 percent who were pessimistic in the previous mid-season survey in January, according to the latest new season Federated Farmers' Farm Confidence survey in July.

Confidence in the general economy declined across all industry groups, led by arable farmers, 52 percent of whom expected economic conditions to worsen. Dairy farmers and meat and fibre farmers were equally pessimistic, with a net 28 percent expecting conditions to worsen. Farmer sentiment has been dented by a slump in dairy prices and dry summer conditions in many parts of the country which saw more stock sent to slaughter earlier and pushed down prices.

"Farmers have experienced a further drop in confidence about the general economy, influenced by heightened concern about the world economy and its impact on New Zealand, falling commodity prices, and adverse weather conditions in some areas," Federated Farmers said.

Six of the seven regions recorded a drop in confidence, with the largest decline in the East Coast North Island and West Coast-Tasman-Marlborough. All regions had more pessimists than optimists, with the most pessimistic Auckland-Northland and Canterbury and the least pessimistic Otago-Southland.

Farmer confidence in the outlook for their own fortunes fell further, with a net 42.9 expecting their own farm profitability to deteriorate over the next 12 months, compared with a net 38.5 percent in January, and marking the worst reading since the survey began in July 2009.

"Lower commodity prices are putting downward pressure on farmgate incomes, while recent adverse weather events (eg North Canterbury’s drought and Wanganui floods) and predictions of an El Nino weather pattern over the coming summer is causing increasing concern for production and cost of production especially for those also facing lower farmgate incomes."

Dairy farmers were feeling the most pressure on profitability, with a net 62.4 percent expecting declines, compared with 54.9 percent of arable farmers and 22.7 percent of meat and fibre farmers.

The only group with more optimists than pessimists was the 'other farmers' category which includes bee, goat, high country and rural butchers. A net 12.2 percent of this group were optimistic about their own profits, a turnaround from the net 17.6 percent who were pessimistic in January. Still, Federated Farmers said the relatively small number of respondents in this category could cause volatility.

Meanwhile a net 16.1 percent of farmers expect to increase production over the next 12 months, down from a net 22.7 percent in January and the lowest level since the question was first included in the survey in January 2010.

"Together with farmgate prices, production is an important ingredient for determining farm incomes and therefore profitability," Federated Farmers said. "In this survey there has been a further fall in expectations about production to its lowest level in five years. This will partly be weather-related although lower farmgate incomes will also be causing some farmers to reconsider their spending on extra inputs that would increase production, such as supplementary feed, and many farmers have quit stock, including capital stock, following drought and/or low payout."

Some 38.5 percent of farmers expect to reduce on-farm spending over the next 12 months, a deterioration from the net 21.8 percent in January and marking the lowest level since the survey began in 2009.

Farmers spent about $13.2 billon in their local economies in the 2014/15 season and it's no surprise there has been a further large drop in spending intentions, given farmer pessimism about both the general economy and their own profitability, Federated Farmers said.

All industry groups pulled back their spending intentions, led by dairy farmers, a net 60.2 percent of whom expected to reduce spending. Spending in all regions was expected to decline, led by Waikato-Bay of Plenty.

The survey also showed a net 25.7 percent of farmers expect their debt to increase over the next 12 months, compared with a net 6.7 percent in January. Debt expectations picked up across all farming sectors, led by the dairy industry where a net 48.9 percent of farmers expected to increase debt. A net 18.1 percent of arable farmers expected to increase debt, compared with a net 2.6 percent of meat and fibre farmers.

Farmers said their biggest concern was farmgate and commodity prices, followed by the weather, and the costs of regulation and compliance. The exchange rate dropped out of the top 10 issues of concern to farmers, reflecting a decline in the local currency that benefits exporters.

The web-based survey was held between June 22 and July 3 and attracted 906 individual responses.

BusinessDesk.co.nz

Comments from our readers

No comments yet