NZ farmer confidence slumps to decade-low on dairy woes

Tuesday 23rd June 2015

New Zealand farmer confidence slumped to the lowest level in a decade in the second quarter as dairy farmers turned gloomy.

Farmer confidence in the agricultural economy turned to a negative net 45 percent in the second quarter, from a positive net 13 percent in the first quarter, touching its lowest level since early 2006, according to Rabobank's latest rural confidence survey.

The sharp fall in sentiment in the latest survey was led by dairy farmers, with 58 percent expecting a poorer farm business performance over the coming 12 months, up from 23 percent in the previous survey, while just 16 percent expected it to improve, down from 44 percent previously. While milk processors are expected to increase their payouts to farmers for the upcoming season, levels would probably still be below the full production cost for many farmers, Rabobank said.

"In response to current pricing signals, we are seeing dairy farmers cut back their rates of supplementary feed and some lower their stocking rates by culling lower performing cows, and maximising feed available to a higher quality, but smaller herd," Rabobank New Zealand chief executive Ben Russell said.

Subdued sentiment in the dairy sector was flowing on to other agricultural sectors and service providers and the wider New Zealand economy, he said.

"In recent months we have seen the weakness in dairy prices contribute to sluggish growth in the New Zealand economy, weighing on the dollar and increasing expectations of further interest rate cuts," Russell said.

Some 56 percent of those surveyed expect conditions in the rural economy to worsen, up from 23 percent in the first quarter. Those expecting similar conditions to last year declined to 32 percent from 40 percent, while just 11 percent anticipated an improvement, compared with 36 percent last quarter.

Lower commodity prices were the key driver of weaker rural sentiment in the quarter, with 78 percent of farmers expecting conditions in the agricultural economy to worsen on the back of prices, up from 43 percent in the first quarter. The impact of drought weighed less on negative sentiment this quarter, cited by just 4 percent of farmers, compared with 25 percent the previous quarter.

Meanwhile, there was little change in beef and sheep sentiment, with about half of drystock farmers expecting a similar farm business performance to last year, and they were split as to whether conditions would improve or deteriorate.

Overall, New Zealand farmers revised down their expectations for their own farm business performance to a net negative 17 percent, from a net positive 14 percent in the first quarter.

This flowed on to investment intentions, with 60 percent expecting they would maintain their investment this year. Some 16 percent expect to increase investment, down from 28 percent in the previous quarter, while 23 percent expect to cut expenditure, up from 12 percent. Just 8 percent of dairy farmers were planning to increase investment.

The survey of about 450 farmers was completed earlier this month.

BusinessDesk.co.nz

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