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Interest Rates, Dollar Hit Rural Confidence

7 June 2002

FARM confidence has eased across most rural sectors, with an increasing number of farmers expecting to earn less in the coming year.

Few farmers now predict an improvement in the rural sector in the next twelve months, while the number who believe their gross income will drop has passed 50 per cent for the first time since the survey began. Even so, over 80 per cent still plan to maintain or increase their level of investment in stock, plant and land.

These are the key results of the latest AC Nielsen/Rabobank Rural Confidence Survey, says Rabobank managing director Bryan Inch.

“The rising dollar has helped lower income expectations, while interest rate expectations are up, so what we are seeing is the result of two key factors impacting on the overall outlook.”

Income expectations in recent surveys have been heavily influenced by the impact of the Fonterra’s payout forecast. In this latest survey, the impact of the increasing dollar and its implications are being felt across the board , Bryan Inch says.

“But this shouldn’t come as a surprise to most farmers. The signals have been there for some time and most farmers have taken this information on board and have planned ahead with this in mind,” says Bryan Inch.

Sheep farmers show the largest change. In the last survey, 37 per cent of sheep farmers expected their incomes to increase and 22 per cent had forecast a decrease. Now less than a quarter of sheep farmers are looking forward to improved incomes and 43 percent expect them to drop. Beef farmers have also lowered their expectations – half expect to earn less, up from 31 per cent.

Two thirds of dairy farmers expect to earn less (49 per cent), and 14 per cent to earn the same (25 per cent).

Interest rate expectations have shown the biggest change from the last survey. Now over 90% of farmers are expecting interest rates to rise in the coming year. This is up from 43 per cent two months ago, and 15% at the same time last year.

“We have seen three rises in the Official Cash Rate over recent months. But we have to remember that rates have been at their lowest level for a number of years and many farmers have taken the opportunity to lock in fixed rates at pretty attractive levels” said Bryan Inch.

Despite rising costs and interest rates, farmers still plan to invest in their properties.

“And this is important” says Bryan Inch. “With incomes decreasing it is essential that productive inputs and maintenance levels are maintained. A lot of money has been reinvested back into farms over the last couple of years, and production gains will be one way to help offset any negative impacts of a rising dollar or falling product prices”.

Next results of the survey will be released in August.


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