Farmers starting new season in a negative mood, according to a Fed Farmers survery; they are worried about China

Farmers starting new season in a negative mood, according to a Fed Farmers survery; they are worried about China

With the Official Cash Rate due out on Thursday, farmer confidence at the beginning of the 2012/13 season has plummeted in Federated Farmers latest Farm Confidence Survey.

“In January, the mid-way point for the 2011/12 season, farmer confidence in their profitability was strong. This has gone fully into reverse gear with most farmers now expecting farm profitability will worsen over the coming year,” says Bruce Wills, Federated Farmers President.

“While a drop in sentiment was expected its size wasn’t."

"The 2011/12 season was probably one of the best in recent times for dairy, meat and wool and would be near impossible to top.  Instead of a slight easing farmer confidence found the trap door and jumped right in."

“The past few months have seen large falls in commodity prices, with the June 2012 ANZ World Commodity Price Index down 12.3 percent from January. The Exchange rate has not fallen to the same extent so has eaten into farmgate returns."

“As farmers are exporters, the European sovereign debt crisis has been extremely negative on sentiment. That comes on top of weak growth out of Japan and the United States."

“As the global economy is on the edge, questions remain if China’s high rates of growth can be sustained. Recent Chinese economic news has not been rosy as China is dependent on exports to an anaemic West. Meanwhile Australian growth, like our own, hinges on China."

 

  FARM CONFIDENCE SURVEY
(net) Survey undertaken 2 - 13 July 2012
38.7% expect general economic conditions to worsen over the next 12 months (this is 34.3 points down on January)
39.5% expect their own farm’s profitability to worsen over the next 12 months (this is down 71.1 points on January)
30.4% expect to increase production over the next 12 months (this is down from a net 47.7 percent in January)
3.6% believe that they will reduce on-farm spending over the next 12 months (this is down 37.1 points on January and is the first time spending expectations have been negative since January 2010)
26.3% expect their farm debt to reduce over the next 12 months (this is down 18.0 points from January)
13.0% found it harder to find skilled and motivated staff (this is up 1.8 points from January)
20.2% say biggest single concern is the level of commodity prices and/or farmgate prices
25.7% say highest priority for the Government is reduced government spending and/or reduced government debt

“This is the backdrop for farmers at the start of the 2012/13 season. We aren’t alone because our survey reflects a general pessimism among the wider business community" said Wills.

“The $64,000 question for all farmers is whether prices will fall further?  We are all keeping a wary eye on the global economy and frankly, we don’t like what we are seeing."

“That New Zealand is ‘less bad’ when compared to Europe and North America, provides cold comfort when our Dollar is kept artificially high because of it."

“While dairy production in the United States, the world’s third largest dairy exporter, will be hit hard by drought the culling of dairy cows there may increase the supply of beef.  In the short term that could soften demand for our beef."

“We cannot anticipate what the weather has in store for New Zealand either; especially in areas that rely on plentiful rainfall without much water storage and irrigation infrastructure."

“Most farmers seem to be hoping they can continue to increase production.  It won’t come as a surprise that farmers are also looking to reduce on-farm spending too."

“Lower spending will have an impact on the local, regional and especially, the national economy. This partly explains farmer pessimism about the general economy."

“Despite a negative outlook many farmers still expect to reduce debt, although worsening profit expectations appear to be putting a brake on deleveraging."

“Reserve Bank statistics indicates agricultural debt has started to rise; at the end of May it was up 2.6 percent on the same point last year at $47.9 billion.  Debt needs to be put into context because the primary industries are a growing part of the New Zealand economy."

“Farmers across the board continue to perceive the farm labour market as tight and getting tighter.

“Perhaps due to the dollar’s strength, farmers believe prudent fiscal policy should be the Government’s highest priority.  They want to see a reduction in government spending, government balancing its books and a reduction in government debt,” Wills concluded.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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Yes: Sounds like last night Bruce sacked his PR type
 
Now:
“This is the backdrop for farmers at the start of the 2012/13 season. We aren’t alone because our survey reflects a general pessimism among the wider business community" said Wills.
“The $64,000 question for all farmers is whether prices will fall further?  We are all keeping a wary eye on the global economy and frankly, we don’t like what we are seeing."
 
and,
 
Then:
http://www.interest.co.nz/rural-news/60341/fed-farmers-bruce-wills-point...
 
http://www.interest.co.nz/rural-news/60232/fed-farmers-bruce-wills-compa...
 

Where is that fall in the NZ$?
Key/English will not countenance it, yet the farm owners still overwhelmingly will give National their vote in 2014.

Basel - what would you do if you were in charge about the NZD ? 

Maybe I am alone (doubtful) but sheepmeat prices whilst good at one point have dropped to levels that are just profitable - so Im out. Beef is OK but I get approx $1000 for 18 months work/risk in bringing an animal to market which then ends up at about $4000 within a month via middle men and retailers - doesn't seem a fair share so future effort is direct selling to the customer.

So why then do I, as a 50-50 sharemilker, suddenly find myself working as hard as ever for half the milk price?
 
http://www.stuff.co.nz/business/farming/7284022/Working-for-milk-price-o...
 
The very thing that keeps the farmer shareholders awake at night has already happened to me, and I don't think it's fair.
 

Not a lot of sympathy there Henry T. Conveniently ignores the substantially higher ROI 50/50 sharemilkers have, than farm owners - glass half empty sort of thinking.  ALL dairy farmers are milk price takers.  Was talking to a progressive young sharemilker recently.  They are fully accepting of a 51% share to them, (49% to the farm owner) in return for no dividend, and taking all young stock grazing costs. They also said their return on investment was 16% last financial year - considerably more than the farm owners. But then that is the South Island - Waikato is not the progressive place for a 50/50 sharemilker to be. ;-)
 
But then, we share our production based dividends and the grazing costs. :-)

We found interesting for it tracks the move in language we have seen from:
- payment/ dividend related to value add
to,
- dividend from share ownership.
 
and we have seem the broader "value-add" story fade.
remember Hv talking value add will be a $1 (was 50 cents at the time), back in 2005/06 if memory serves us..
7 or 8 years later to be told dividend (share or value-add) still to be 40/50 cents is just sad...
 
Agree with your thinking from other thread, Hv needs be off altogether if Brown is his own man. And from Brown's possie, he needs Hv well away, or needs be taking steps to ensure that to occur pre Xmas....
 
Yes to your ROI: will explain Dairy Holdings ops mgt being the sharemilkers -
With the 16% folk, how well geared do you think they were?
And steady state with costs, using forward looking payout, what do you think th % would be..
 

16% folk are 2nd year sharemilkers, and gearing is around the 60% range.  Had a very dry summer.  And steady state with costs, using forward looking payout, what do you think th % would be..They predict it will be 20-25% end of this season. They work with a good team of business advisors (accountants etc) when needed, and seem to know they need to work on the business as well as in it-something not always understood by sharemilkers in the early stages of their careers. I've not known them long - another young couple from the North who sees their future remaining farming in the South.
 
A lot of BB farmers seem to not care a whit about the split between milk price and dividend - they see it as being political more than anything.  At the end ofthe day, they argue, it all goes in to the same pot to pay the bills. There does seem to have been a lot of 'politics' involved in setting the dividend/value add over the years. As you say results are a bit sad really.

Forgive my ignorance, but does it go into the same pot? If dividends are seperate to the subservient milk price, will this reduce the price of land? Hard to imagine given the investment Henry and friends have in land.

does it go into the same pot? In this case the pot refers to suppliers bank accounts. :-)  I don't see land prices changing a lot as farms are already being sold as land and buildings PLUS shares, if they are a current Fonterra supplier. Banks are consistently telling me that cashflow AND principal payments after a couple of years, is what they now consider when making lending decisions - but of course there are always exceptions!

Cheers CO, I don't doubt you have a better handle on it than me. It's just you don't need to own land to recieve dividend benefits, and with the milk price collared, is that where the focus will be?

With DIRA requiring the dividend to be maximised you may very well be right Omnologo ;-)