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Farmer Pessimism Continues

Farmer Pessimism Continues

Results at a Glance

  • New Zealand farmers remain very pessimistic about the economic outlook for the next 12 months
  • Most farmers expect farm profitability to significantly decline. Seventy per cent of farmers expect their income to be lower than in 2005, up from 59 per cent in the December survey. Over 80 per cent expect increases in their costs of production
  • An increasing number of farmers are indicating that they will not be investing additional capital in their businesses in 2006
  • The latest Rabobank/AC Nielsen Rural Confidence survey continues to make for gloomy reading. New Zealand farmers maintain a strongly pessimistic view of the outlook for the economy and the impact on their businesses.

    The latest survey, undertaken in February, shows continuing gloom amongst sheep and beef farmers and a marked drop in optimism from dairy farmers.

    A noticeable change since the December survey is that 60 per cent of dairy farmers now believe the economic situation will worsen in 2006, up from 41 per cent in the December 2005 survey and only seven per cent in October 2005.

    Rabobank New Zealand executive manager Hamish Midgley says the main driver for the decreased confidence among dairy farmers appears to be a growing view they will not receive more than $4.00/kg milk solids next season.

    “The survey shows that 40 per cent of dairy farmers believe their incomes will be lower in the next 12 months, while more than 80 per cent of all farmers expect cost of production to increase,” he says.

    However, Mr Midgley says, farmers are likely to be responding to short-term messages rather than looking into 2007 and beyond.

    “We can’t underestimate the short-term effect that the combination of high interest rates and the value of the New Zealand dollar have had on returns this season and therefore on farmers’ confidence levels,” he says.

    Indicators show the longer-term market outlook is more positive. Released last week, the Rabobank Agriculture in Focus report, while acknowledging tougher times in 2006, predominantly driven by exchange and interest rate impacts, says there are positive market signals.

    “There is light at the end of the tunnel,” Mr Midgley says. “Rabobank’s view is that our major markets for sheep meat, beef and dairy products are sound. Demand continues to increase and global economic growth in excess of four per cent is forecast. New Zealand remains a competitive supplier of high quality products.”

    The latest survey also shows farmers continue to indicate a conservative approach to further investment in their businesses in 2006. Sheep farmer investment intentions are at the lowest point since the survey began. The response from beef farmers has dropped sharply. A net 10 per cent of dairy farmers still intend to further invest in their businesses in the next year.

    These sentiments are already being reflected in reports of a reduction in sales for rural servicing companies. “This is not just about purchasing the neighbour’s property or an additional farm,” Mr Midgley says. “It includes fertiliser applications, new fencing, farm buildings and additional equipment. It is this reduction in spending that is likely to have a continuing effect on rural towns.”

    The Rabobank/AC Nielsen Rural Confidence Survey is the only study of its type in New Zealand and surveys a panel of more than 800 farmers across New Zealand. The survey is conducted bi-monthly.

    Rabobank New Zealand is a part of the international Rabobank Group, the world’s leading specialist in food and agribusiness banking. Rabobank has more than 100 years’ experience providing customised banking and finance solutions to businesses involved in all aspects of food and agribusiness.

    Rabobank has a AAA credit rating and, in recent years, has twice been awarded the title of the world’s safest bank by Global Finance magazine. Rabobank operates in 35 countries, servicing the needs of more than nine million clients worldwide through a network of more than 1500 offices and branches.

    Rabobank New Zealand is one of the leading rural lenders and a significant provider of business and corporate banking and financial services to the New Zealand food and agribusiness sector. The bank has 29 branches throughout New Zealand.

    ENDS

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