Rural economic confidence evaporates as drought takes hold, according to latest Westpac McDermott Miller survey

Rural economic confidence evaporates as drought takes hold, according to latest Westpac McDermott Miller survey

The growing drought problems have bitten hard into the economic confidence of the rural parts of the North Island, according to the latest Westpac McDermott Miller regional confidence survey.

Westpac's chief economist Dominick Stephens and senior economic Felix Delbrück said that the drought had caused economic confidence to "evaporate".

"The Westpac McDermott Miller Regional Economic Confidence survey showed regional economic confidence plunging to multi-year lows in Northland, Waikato, and Gisborne/Hawke’s Bay, and falling sharply in Taranaki/Manawatu-Wanganui as well,"  they said.

The entire North Island is formally in drought and the first two regions of the South Island were officially declared as in drought on Friday.

Stephens and Delbrück said confidence in other regions was "mostly little changed" from three months ago, falling in Auckland and Canterbury and rising modestly elsewhere.

"On average across New Zealand, households’ attitudes towards their local economy remain cautiously optimistic, with Canterbury leading the rest of the country by far, followed at a distant second place by Auckland."

The survey was conducted from March 1-10 with a  sample size of 1582.

In terms of the regional break down: in Northland economic confidence plummeted from already low levels, as dry weather hit an economy only just emerging from the after-effects of previous droughts and a lingering housing bust. "The last time economic confidence fell to similar levels was in late 2010 (another drought year), and the last time it was lower was way back in the early 1990s recession."

In Auckland economic confidence lost some of its recent shine, falling from a net 23% to a net 16% optimistic. "Even so Auckland remains the second most optimistic region in the country after Canterbury. And small wonder, given that the housing market continues to surge ahead."

Waikato's economic confidence has plunged into pessimism, falling to its lowest level since March 2009. The region is now the second most pessimistic in the country after Northland. "Drought has clearly hit local dairy farmers hard, with rising global prices providing little in the way of immediate comfort. The demise of Solid Energy won’t have helped either."

Economic confidence in the Bay of Plenty remained weak, but improved marginally over the last three months. "This surprised us given the big hit to economic confidence in other drought-affected areas. What’s more, the Bay of Plenty economy continues to face a range of other challenges, including the PSA blight which has devastated kiwifruit farmers, high unemployment, and the elevated NZ dollar."

Gisborne/Hawke’s Bay economic confidence plunged back into pessimism as dry weather hit farmers in the region, though drought wasn’t officially declared until after the survey. "Economic confidence is now the lowest since late 2008. Other factors continuing to weigh on economic optimism are high unemployment, a Gisborne property market in the doldrums, and the high NZ dollar."

Taranaki/Manawatu-Wanganui enjoyed one of the highest levels of economic optimism in the country three months ago, but the drought has eroded much of that lead, with only the Waikato suffering a bigger decline in economic confidence. "The fact that the region remains marginally optimistic reflects several positives, including an expanding energy industry, the lowest unemployment rate in the North Island, and modestly rising house prices."

Economic confidence in Wellington remained pessimistic, but improved for the third time in a row to be the highest since September 2011. "There may be a growing sense that the Wellington economy is adjusting to years of public sector cutbacks, and the region’s housing market is now slowly improving."

Nelson/Marlborough/West Coast economic confidence improved slightly to above the national average. "We were braced for worse given the demise of Solid Energy and the fact that the West Coast has suffered its share of dry weather. A modestly improving Nelson housing market and spillovers from the Canterbury rebuild may be providing some offset."

Economic confidence in Canterbury  fell  back slightly, its first decline in a year. "Even so confidence in the region remains firmly optimistic, by far outstripping the rest of the country. The rebuild is now firmly underway, and on most indicators the Canterbury region continues to charge ahead."

While economic confidence in Otago remained below the national average, it improved for the second time running and was now at its highest since September 2011. "A perkier global economy, low unemployment, and slowly improving property markets in Queenstown and Dunedin may be driving the gradual recovery in economic optimism."

Southlanders’ economic confidence saw by far the biggest lift of any region, rising from deep pessimism back to cautious (by Southland’s usual standards) optimism. "The aluminium smelter at Tiwai Point remains embattled, but unlike the North Island Southland has enjoyed a stellar growing season, while benefiting from the surge in dairy prices caused by the drop in New Zealand’s overall milk production."

The regional breakdown of the separate Westpac McDermott Miller Consumer Confidence Index showed a modest rise in confidence in all regions except Northland, Gisborne/Hawke’s Bay, and Wellington.

"The fall in Wellington was big enough to cause the national average to fall slightly from three months ago," Stephens and Delbrück said.

"Wellingtonians’ reported financial situation continues to improve (it’s now the best since June 2011). However their future outlook (both for their own situation and the national economy) has had a setback, and they have also become less willing to buy major household items."

The economists said there was a "divergence" between regional economic confidence and consumer confidence in some drought-affected regions - particularly Waikato and Taranaki/Manawatu-Wanganui, where households’ confidence in their local economy plunged but consumer confidence rose slightly.

"It looks as if people expect the regional economy to suffer, but their own finances and the national economy to stay relatively resilient. Depending on how long the drought lingers that resilience may not last. Looking back at recent drought episodes (Waikato and Taranaki in early 2008, Northland in early 2010), consumer confidence continued to fall even after regional economic confidence had bottomed out."


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I wrote to aleader in farm real estate, today.
I wrote
Hi M

 Don't worry farmers always wait until their farms are cheap before they sell. My friends tell me the banks are getting tough and lets face it, farmer demographics are going to require a huge number of young farmers to enter the market in the next 10 years, they can only do that if land is cheap.,


 Looks like a lot of farmers will have to change to lower risk systems, they have no choice, so its going to get interesting as stock numbers get rebuilt. I hear Taihape is a mess, with no feed for winter, interesting place to be this time of year.


   Things will get more interesting as we enter the biggest financial crisis since 1931, it could even be bigger, our government is protecting those in the main centers by borrowing to keep the pretense,  that we can afford the lifestyles we have become accustomed to, over the last 20 years, as we borrowed  400 billion, 180 billion of that in foreign currency.


Its no coincidence that farm debt is increasing every month, at about the exact amount of the interest due on the loans.


  Dairy I think is in the worst position. I don't see a way out for most, just stuck as high cost, highly indebted commodity producers, in crisis, as councils and suppliers ramp costs up, dairy farmers are trapped, pinned against the wall by cheaper producers offshore, competing in the same markets. Fonterra shares trade at $7 but have a capital value of under $2.


 There is also going to be a fertiliser crisis as farmers are forced to cut back, this is already happening but going to get worse, rye grass pastures will struggle to be dominant and production will fall, there is now no fat in the system to cope with adverse seasons and instead of a few years to recover its going to be a decade, if you get that much time before the next climatic crisis.


 All fun and games until someone loses an eye. of course, I could be wrong


regards Andrew



his reply


 You are bang on the money there Andrew. I wish more people realised the dire straits NZ farmers are in. they certainly don’t. M


Those that push the envelope will certainly be hurting - bankers as well as farmers.  Friends in the Waikato who farmed through the 07,08,09 drys go on to 16hr milkings from Christmas onwards - animal health issues allowing - as a matter of policy.  They aren't the only ones to have learnt from those dry years, so some will be better off than others.  IMO it will be mid winter when the drought really hits the rural dairy communities. 
March 27 will be a 'make or break day' for some dairy farmers. 
It is the wide geographical area of dry that makes this drought different to others.  Where would farmers have been with out PKE?  For some a lot better off if they had never heard of it.
AJ & stevel - An old man many years ago told us if you ever sell with the intention of buying again always buy and sell on the same market.  Your comments re waiting for prices to drop remind me of the t-shirt of a skeleton wearing a hat, with the caption 'Still waiting for the perfect man/woman'. ;-)  Meanwhile I will wait for the perfect buyer of our Whakatane lifestyle block :-)

Don't worry CO there's life after farming, 6 more months here and Im trying to persuade my wife to head for France. Found a house on a few acres
 things could be worse.

Mmm Looks idyllic Aj. Just needs a pool ;-)
You are right - there is life after farming.  Make the most of it.  We have spent the last several years as international gypsies, travelling and very occasionally working when the mood took us.  We have had a ball. Now we want to 'settle down'  and take on a challenge again.  So we have become mainlanders, have a project and look forward to being part of our soon-to-be-born kiwi grandchild(ren's) lives.  Still intend to see out UK grandkids every year so haven't given up on travelling. :-)
If you buy that house and put a pool in, could be interested in renting it, if you decide to do holiday rentals. :-)  Good luck!

CO, unfortunately in France owning a pool can affect your taxation. Better to use the neighbours, who has several daughters who never wear enough clothes anyway.

No folks generally don't get it yet - but will soon at the supermarket checkout counter. Wednesday, Fonterra to announce not only where dairy produce prices are heading but whether it will bring forward payouts to relieve cash flow to drought striken farmers.  What if they don't?  Even if they do - I can't see our dollar holding up where it is.  We're in for a double-whammy I think - highly inflating food prices coupled with a currency confidence disaster. And both corporate and government downsizing in full swing. It feels more like a rubber band at breaking point daily. Best stock the freezer and buy in the milk powder over the Easter weekend. Whole legs of lamb today at $20 / each.  Before the drought - at least double that. After the drought and in particular if this carries on - anyones guess.
PS meanwhile the focus is on Auckland house prices.

My farming mates tell me the meatworks have 3 more weeks kill of lamb and thats it for the season.
  Told me he managed to sell some forestry or he would have been very stressed.  This drought has done a lot of damage to a lot of farmers. Much worse than I realised.
 Worst is still to come.
You could always salt some meat, its easy and pork tastes great.

Prep for 27 MArch
Here is Warrnabool Cheese and Butter Factory results to Dec 2012 (H12013).
they are factory/plant building with Tatua.

Here is PrimeAg selling up
page 6.
PrimeAg remains in discussions with parties in relation to the sale of its remaining assets and the operating company.....

ABARES' latest predictions for the dairy sector, released at this week's Outlook conference in Canberra, won't do much to change the current sour mood among milk producers across the nation.
It forecast farmgate prices would fall slightly over the next five years to reach 36c a litre (in 2012–13 dollars) in 2017–18, which would reflect reflecting lower world dairy prices toward the end of the projection period.
Australian milk production was forecast to increase by 1.3 per cent to 9.62 billion litres in 2013–14.

This is sobering (and long, see the link)

IN the past month five WA wheatgrowers have abandoned their farms, throwing the banks the keys to their vast properties.
Hundreds of other grain farms are for sale in a crescent stretching from Morawa, 350km northeast of Perth, east towards Merredin and Southern Cross, and south to Bruce Rock, Kulin, Corrigan, Narembeen, Lake Grace and Hyden, The Australian reports.

And those who believe the region remains viable for agriculture are constantly looking for ways to farm smarter with less rain.
Four years of extreme drought, frost and unseasonal rain variability, plus the high dollar and world grain price volatility, have created havoc in the sprawling eastern rim of WA's rich grain belt, which in a good year can grow half of Australia's wheat crop. Land prices have crashed, farms sit unsold and banks are applying pressure to growers close to financial collapse.
Western Australian Farmers Federation president Dale Park fears the situation is becoming as grim as in the 1930s Depression era, when vast farming regions were abandoned and productive land sat unused for a decade.
Farm Weekly is filled with pages of large cropping farms for sale; shops in once-prosperous country towns such as Merredin and Narrogin sit empty; and second-hand tractors, headers and trucks once worth $400,000 each gather dust in the Corrigin and Wagin dealer yards.
Ken Fry, rural president of the Real Estate Institute of Western Australia, describes the market as so swamped with grain farms for sale in the central and eastern wheatbelt, many under bank pressure, that it has effectively collapsed.
"We can't give a farm away at the moment - that's how bad it is," Mr Fry said.
"And if you do give away a farm because times are so hard that you accept a low price, then that has a significant effect on the rest of the farmers around because then their equity goes too."
Babakin farmer Brian Reed, 58, sold one of his farms last year and is reluctantly trying to sell two more this month, in a last-ditch bid to keep the banks' hands off his family's 1000ha home farm, Hillview, where his ageing parents still live. But he knows it is going to be a desperate battle. His bank has imposed a 12 per cent interest rate on his overdraft, including an extra 2-3 per cent "risk" component, and is not willing to lend him more money this season to plant much of a crop.
Mr Reed despairs of getting on top of interest payments on his crushing debts, let alone paying off his principal, with such tight controls on his ability to farm himself out of the crisis, and his land revalued by the banks at just $1000 a hectare instead of $2000/ha two years ago
"Like most people around, I'm on depression tablets; and in the eastern states they seem to know more about the US drought and their corn crop than the crisis out here."

Here is what the local finance types are saying:
Bascand said Fonterra had also talked to the market for 18 months before listing its units on the NZX and ASX last year. The likely hit to Fonterra's milk collection from drought in some of its top production areas such as the Waikato was expected to affect the potential for small dividend upgrades in the IPO prospectus, he said.
"It makes it difficult for the company to talk as positively."
However, the market was expecting a "very solid" statement and reaffirmation of the prospectus in other respects.
Analysts said they were also keen to hear Fonterra leaders' expectations for the rest of the financial year given the ongoing drought.
Bascand hoped the company would use the opportunity to outline growth prospects in new global markets, particularly China and Asia. (we want to know about Oz supermarket channel)
Grant Williamson, of Hamilton Hindin Greene, said he would be looking for forward comments from the company around the unit price and the effect of drought on production, particularly in the second half of the year.
Fonterra's farmer shareholders will be looking for a "very good performance" given that some of its independent but smaller competitors were signalling strong payouts, said Federated Farmers Waikato president James Houghton.
Q1: Will the Fonterra boyos have a diiferent view to the Ozzies ABARE (Australian Bureau of Agricultural and Resource Economics and Sciences) and if so why...
Q2: How will F match the other co-ops with either payout and drought cashflow help?
Form the above, we note the finance types are not talking farm supplier welfare/cashflow ....

and two more Qs
Q3: How is supplier volume to increase if shares are $7 (ie quota cost). could droughted suppliers lend shares to new production volume in SI.?
Q4: Who much of the $500m is left (where did it go)?

Hi Henry. Your link was giving me 'page not found'.
This though may be what I couldn't get to - interesting irrespective:

yes, it looks like they don't like links to a full page view frame, so the path to the article is:
Thanks for your link, it looks to be the source presentation. Its all there on page 14

Those three half year figures for cashflow and for return on equity are trending down sharply for Warnambool C & B ....

yes, and they are strapping themselves in with Coles and a make of behalf arrangement with Kraft. Margins ever greater not.

Brilliant AJ. On the button as usual.

well said

Lucky we have landcorp to take the extra land.
I have waited and waited for landprices to decline so that I could get back into farming - I sold out 2007 -(they haven't).
Crap rates at the bank have encouraged me to purchase a block of flats.
My wife is very relieved :)
I am not so happy - but I have enjoyed a great summer!

I remember, you sold just before me.  Mind you you missed out on 3 of the worst droughts and  roller coaster returns.
 Im still waiting and waiting and waiting, life in California is Ok but Id rather be farming. God I need help, therapy, mind altering drugs, oh just give me the drugs.

Well Steve Jobs did say something along the lines  that taking LSD was one of the two or three best things he had done.
You may be interested in these articles ==>
and this book ==> Goldsmith, N.M. (2011). Psychedelic Healing: The Promise of Entheogens for Psychotherapy and Spiritual Development. Healing Arts Press. Rochester, Vermont
Should a terminal illness concentrate my mind, I will seriously look at having some LSD or mescaline. 
Though, to be fair, it would seem I might become less of a curmudgeon according to the recent research - so why wait until the last part of my life?
Just have to work out how much I enjoy being a curmudgeon Vs the legal risks of obtaining some LSD or mescaline....

how much have you got?

none.... hence the reference to the legal risks of obtaining some... Or are you suggesting how much I am willing to pay? :-)

How much do you need?
 I remember a story by steve wright, when crossing the canadian border, the customs officer asked" have you got any guns"? he replied in a whisper" what do you need".

Yep I rather be farming too - just not as it is at the moment - high debt, high risk, massive stress.
I am a desk jockey now - 40hrs per week is like being retired!

Let's raise interest rates   -   that might help.

I am in the prime of my years, a recent agricultural graduate and I have decided to leave the industry because it was so depressing.........all that knowledge and no way of making a career out of id get would be a puppet managing a corporate unit......
or go sell that sounds like an exciting career

you so right Donker, at best you can work like a dog for ten years (@ 80hrs/wk), then take that equity that you have built up and go and prostitute yourself to a rural banker, who will love you till it hurts!!
Great stuff!!

But if it is really what you want to do?
The problems we see are for those who are in now, with ususally financial structure based on thinking/promises make 5 to 7 yrs ago... You have not that burden... but learn by mistakes of others....
Think of it not as an industry, but a checker board path to build assets. Thinkng as it an industry will stop you focusing on your own financial viability and see you taking on the problems of others.
Share milking is still a channel to gather equity (not neccessarily farm ownership at present land values). Whatelse, you don't want to be an ownerdriver etc, etc.... hard to get ahead on a wage...
We have seen folk start out as farm managers (any mistakes/lessons are on their time), have the syndicate investors fall apart, leaving them as the property purchaser, having told the financial investors, well you either get nothing, or 20/30 cents in the dollar. Remember a corporate owner can take a loss on equity/put more equity in easier than an owner operator who will make it work or die in the process - stuffing the workers.....
Although they may be manager jobs, see if you can get livestock owning side deals/eg buying all calves for you to raise, first and last or sole rights to buy culls etc, etc.. ability to lease grazing blocks etc... a share of milk revenue over a certain threshold etc, etc.... (payable in cows etc...)
Look at the way the "executives" of Dairy holdngs are the sharemilkers as well. i.e. are the operations managers, and the party supplying sub contractotors for "management" (overseeing themselves - lol). - so note to self - avoid the sharks....
When you do borrow keep sets of assets (cows in separate trusts) don't cross gtee anything,
Set 2, 4 5 yr plans with targets, its not a sprint.... Be your own person, learning from but not burdened by others circumstance.... Don't put all your trust in land/stock agents...
Doing such, people will see you as backable and prime spots will open up....

Well said Henry T. Surrounding yourself with people with positive attitudes and taking a gap year (OE) before going sharemilking are also helpful.  Finding a mentor also makes it easier if your family aren't able to give you the support.
Spoke to an equity manager recently and he is in exactly the position you describe. :-)

Not too many sharemilking jobs out there. For sure do a gap yearand see. The opportunities off shore. With a little equity in WA you can rent some cropping ground, hire a tractor and gear for a season, put your seed and fert on tick and make a go of it. Oz dairy industry has interesting opportunities also.

NZ farming is for rich old people who either don't know about farming, or don't know.anything else.


Don't know about WA cropping for a new starter, stevel.  Son is in his 6th year of going there to plant wheat - same family farm.  He's the only one employed outside the family. The volitility of it is huge.
I'm not convinced that Uni is the best place to start if you want to be a farmer.  Those motivated chaps/chapesses who go get a job and work their way up the system seem to be way ahead of the kids who go to uni, by the time the Uni grad graduates.  I guess I'm fortunate to know quite a few young, motivated, successful young dairy farmers/sharemilkers. Also being lucky enough to help a few acheive their goals by employing them as sharemilkers. In every case they started straight from school, left farming just before going sharemilking to do OEs varying from 6mths - 4yrs, kept their investment assets intact so when they came back could afford to go in to sharemilking.  It can be done and is being done. :-) But none of them did it without a good mentor - either in or outside the family.
Wouldn't touch the Oz dairy industry with a barge pole, but then it's courses for horses. ;-) I'm in dairy farming and happy, you're out of farming and happy. There's no right or wrong answer.

CO, we found it:
Don't know how it works, we left a tag under one of Colin's posts to see what he thinks.
We can't see any P&L or balance sheet for 2013 year (the current one) although a payout of $5.40 for this year is mentioned earlier.
What do you make of the lvr

Thanks Henry. Mmm.... What aren't we seeing?
Comparing stats given on presentation compared to MPI 2012 Pastoral Monitoring Canterbury Dairy:
Stocking rate given for Dunsandel Farm is higher 3.72 cf 3.4.  MS/cow is <400 cf 415. Possible issues there???
Debt/kgms is too high for me.
Interesting to see that they promote the 'doesn't need OIO approval' angle.
Would be interested to see what others think but for me, got more questions than answers.

There always was a OTC (accountant ledger book share matching service) from way back...
Looking forward to seeing the Issuer Profile...
Unlisted's rules and regulations
Unlisted is a trading facility that is not a registered stock exchange under the Securities Markets Act. Investors in companies quoted on Unlisted are not protected by the Securities Market Act's protections relating to insider trading, continuous disclosure, Directors' and officers' relevant interest disclosure or Substantial security holder disclosure.

Issuers remain bound by the obligations contained in their constitutions, the Securities Act, the Companies Act and the Financial Reporting Act, and by Common Law.

Quotation on Unlisted does not affect an Issuer's status under the Takeovers Act and Code, and the usual regulatory protections associated with a registered exchange and Securities Commission enforcement of them are not available.
Must ask how some of the original dev syn $ funders are feeling...

Henry Tull, you are a fantastic source of information, which is much appreciated this end.

Thanks your posts are gold, make us see the beyond district views.

Mutual respect.
 What did you make on the article I posted above about rain fall patterns in Western Australia, scarry stuff if I use that as a blue print for the Eastcoast of the North Island.

We had a season tractor driving out there, but it is very diiferent to how it was then.
But yes change is happening, doesn't matter if you say climate change or some other name the cause.
We agree with you, the east coast NI would seem not the place for irrigated pastoral farm systems. Gee even in Cantab, we can not believe the volume of (river fed) water that is put on/bombed on to some of the lismore and lighter soils.
30 years ago we can remember being on a sheep & beef property on the east of Eltham, asking what that run down shed was. It was a dis-used dairy from an eariler dairy run....
Some of the community (at first Bdyke) systems we sold to us as security for drought years, once the schemes in (even when part funded by grant) costs drove us to intensify...
Check old Grasslands Ass. papers, you will see Bdyke going back to the 60's and 70's where people we able to lift production 200% to 250% with water and lucerne. At that time, having a development block, you were able to do the resowing and fencing yourself, so cash costs funded out of income. That was bang for buck
Lession: Development costs were too risky to fund with debt, rather only use retained earnings.....
We posted something about the panhandle (similar to this ) as one of the kids was reading Grapes of Wrath .
We were talking about our own family history back in the 30's and around the time of the Debt Conversion Act . and the associated refinancing of farm debt.