Rabobank Farmer Confidence Survey

Livestock farmers operate in a financial climate that is cyclical, and expect fluctuating product prices as supply and demand of their products varies. Seasonal volatility often influences supply especially as many pastoral farmers rely on spring to autumn rains to grow the grass for livestock production.

The survey results show no surprises from dairy farmer confidence who expected an easying of prices after last years highs. This has been reinforced by Fonterra reducing next years projected payout in line with lower commodity returns, and when we factor in lost revenue from closed dairy factories as a result of the gas leak, the more conservative projection is prudent.

Sheep and beef farmers have also been conservative about the future outlook listening to their marketers who warn that the consumers are baulking at the present high prices especially for lamb and wool. However limited supply of both these products will allow the product to be spread far and wide to the better paying customers and minimising the downside effect of such strong values.

Beef farmers also understand that the US drought has pushed up supply in a shaky financial market early but reduced stock numbers will create price opportunities for NZ producers later next year. Investment decisions by farmers reflect the fact that they are in the business for the long haul, and often make fertiliser, plant, shelter, breeding and repairs and maintainence costs for a return in the future.

Concerns about a deteriorating global economy and the outlook for agricultural commodity prices have put a dent in New Zealand farmer confidence. The latest quarterly Rabobank Rural Confidence Survey has shown a drop in New Zealand farmer sentiment, following two previous quarters of high confidence levels.

The survey – taken earlier this month – found only 35 per cent of the country‟s farmers expected the agricultural economy to improve in the next 12 months, compared to 48 per cent with that view in the previous survey. Those expecting conditions to worsen increased to 10 per cent, from six per cent previously. Rabobank general manager New Zealand Ben Russell said the results “equated to a drop in net confidence from 42 per cent to 25 per cent”.

Worries about the deteriorating global economy, along with concerns about the sustainability of high agricultural commodity prices, were the main factors contributing to farmers‟ negative sentiment. Of those expecting the agricultural economy to worsen, 44 per cent cited overseas markets/economy and 31 per cent nominated falling commodity as reasons for their pessimism.

“The survey results are also reflecting a recognition that while agricultural returns have been good, commodity prices will not remain at high levels forever.” New Zealand farmers however had a mixed take‟ on current conditions. Those farmers with a positive outlook for the agricultural economy cited strong commodity prices and an expectation of an improvement in overseas markets as key reasons for their optimistic outlook.

“Respondents noted the global shortage of food, and particularly protein, as being a significant driver of market returns,” Mr Russell said. Although all sectors had registered a decline in confidence, the Rabobank survey showed overall, on a net basis, sheep and beef farmers remained more optimistic than dairy producers. Of sheep and beef farmers surveyed, 34 per cent expected the agricultural economy to improve, while seven per cent expected conditions to worsen. For dairy producers, 35 per cent had an optimistic outlook, but 13 per cent were pessimistic.

Mr Russell said sheep and beef farmer confidence had likely sustained at higher levels off the back of more recent price rises. “Higher prices took longer to arrive for lamb, beef and wool than for other sectors,” he said. “Meat prices didn‟t enjoy the boom in 2007/08 when virtually every other agri commodity did and have surged only more recently. On top of this, the lift in prices received at farm gate in these commodities is likely to be sustained for a period due to the reduction in global sheep flocks and cattle herds that has occurred over recent years.”

Mr Russell said the lower dairy farmer confidence likely reflected the expectation that last year‟s record prices were unlikely to be repeated in 2011/12. “It was a record year for returns in 2010/11 and the view among producers is that there is a low likelihood that two record years will occur in succession,” he said.

Farmers‟ investment intentions also showed some decline, following a surge in the previous two surveys. The number of farmers intending to increase their farm business investment declined to 30 per cent (from 36 per cent previously), while the number planning to decrease investment climbed to seven per cent (from four per cent). However, Mr Russell said, farmers‟ investment intentions were relatively stable, with 63 per cent intending to hold investment at current levels.