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Lower dairy commodity prices, the high currency, and higher interest rates drive down farmer confidence. Now sheep and beef farmers are more confident than dairy

2nd Jul 14, 5:21pm by Guest

Content supplied by Robobank

A softening in dairy farmer sentiment and rising interest rates have led overall New Zealand rural confidence to a significant slide in the past quarter, but beef and sheep farmers have bucked the trend, with their confidence levels rising to three-year highs.

The latest Rabobank Rural Confidence Survey – completed in June – has shown a sizeable dampening in overall farmer confidence, with just 25 per cent of the country’s primary producers now having a positive outlook on the performance of the agricultural economy in the next 12 months.

This was down from 42 per cent with that expectation in the previous survey.

A total of 24 per cent expected conditions to worsen (climbing from 13 per cent with that view previously), while 50 per cent expected the agricultural economy to remain the same in the coming year.

Much of the softening in confidence was driven by dairy farmers, who reported a significant decline in sentiment, primarily because of falling commodity prices – a reason given by 63 per cent of dairy farmers who had a pessimistic outlook.

Dairy is now the least confident of all the New Zealand agricultural sectors in terms of future outlook, reflecting the reduction in milk payout expectations for the 2014-15 season compared with the record high prices from 2013-14.

Sheep and beef farmer sentiment, on the other hand, recorded a healthy surge, with 57 per cent of farmers in this sector reporting a positive outlook (up for 37 per cent in the previous quarter).

Just seven per cent expected conditions to worsen in the next 12 months, down from 10 per cent previously.

Rabobank New Zealand CEO Ben Russell said the results reflected the strengthening being seen in sheep and beef prices, on the back of lower supply due to high slaughter levels in the past 12 to 18 months.

Mr Russell said the slump in dairy farmer sentiment had been driven by lower dairy commodity prices, as well as the strengthening New Zealand/US dollar exchange rate.

“Dairy commodity prices have fallen from record high levels in 2013, and have been down between 10 and 20 per cent since mid-March in US dollar terms,” he said. “The dollar was also cited as a concern, with 28 per cent of dairy farmers saying the exchange rate had contributed to their pessimistic view.”

Overall, New Zealand farmers were also concerned about rising interest rates – 22 per cent who had a negative outlook on the 12 months ahead nominated interest rates as reason for their pessimism.

“With the RBNZ now hiking the official cash rate three times over the past three consecutive months, and clearly signalling further rises are likely, it is not surprising that interest rates are weighing heavily on farmers’ minds,” Mr Russell said.

“This will be impacting on farmers’ plans in terms of spending and investment in the coming 12 months.”

For those New Zealand farmers with a positive outlook, the main causes for optimism were rising commodity prices (31 per cent) and overseas markets/economies (nominated by 29 per cent).

Farmers’ expectations of their own business performance were also down overall, though more positive than their view of the agricultural economy generally.

A total of 42 per cent expected improved business performance in the next 12 months – slightly down on the 46 per cent in the previous quarter – while 39 per cent expected performance to remain stable and 18 per cent for it to worsen (compared with 11 per cent previously).

Mr Russell said sheep and beef farmers had the highest expectations of their own businesses since July 2011. “And it is the first time they have been ahead of dairy farmers on this measure since December 2011,” he said.

Interestingly, New Zealand farmers’ investment intentions remain unchanged since last quarter with 93 per cent of farmers intending to increase or maintain the level of investment in their farm business.

Mr Russell said while the measure was stable, the sector composition was different. “Sheep and beef farmers have increased their investment intentions, while dairy farmers have lowered their expectations in this regard,” he said.

Questioned on the topic of sustainable practices – 82 per cent of New Zealand farmers indicated they were actively implementing best practices to improve environmentally sustainable outcomes on their farms.

Sheep and beef farmers were, however, trailing behind the rest of the agricultural sector in this regard, with just 74 per cent of producers in this sector assessing that they were implementing best practice in this regard.

On the topic of succession planning, 62 per cent of farmers were currently considering succession of the family farm, with only half of these farmers having a formal succession plan in place.

Conducted since 2003, the Rabobank Rural Confidence Survey is administered by independent research agency TNS, interviewing a panel of approximately 450 farmers each quarter.

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31 Comments

by tim12 | 3rd Jul 14, 8:53am 1404334423

The problem with selling lamb is this. I can sell a fat lamb to a friend for $100 he can take it to a local killing plant and get it killed and processed for $25. If he were to buy that meat at the supermarket it would cost him probably $250 to $300. And farmers get a bad rap from town people because of the price of meat? I think our meat industry needs a rethink.

by Brendon | 3rd Jul 14, 9:26am 1404336400

I have a local Lifestyle block abattoir nearby. Could I buy a live sheep from a local farmer and get it processed for this price?

by steven | 3rd Jul 14, 9:48am 1404337724

Go ask them?

My Dad and I sometimes buy a complete side if its on special (of whatever) and cut it up ourselves, a lot cheaper.

Also Im not aware its illegal to kill it yourself as long as its humane.

You could also learn to shoot and get your own pig/deer, cost of bullet about $1, some petrol to get to a good spot. Though you would need a rifle Licence $126, gun case $300, Tikka T3 about $1500, so it can add up. Crossbow avoids some of that licence etc expense but takes way more skill.

regards

by Ergophobia | 3rd Jul 14, 10:03am 1404338621

Brendon,

Cut it's throat (or get the farmer to if you can't), take it home and hang it up in your garage rafters head down. Remove the hide working down with a combination of knife cuts and pulling. Put a bucket under and open the gut lenghtwise down to the ribs, the intestines will fall into the bucket, then pull the lungs etc out and trim out the throat and anus. Be careful not to puncture the bowel/bladder etc. . Bury the guts and hide in your garden or on the drip line of fruit trees. Leave the carcase to hang and set overnight (with the doors shut so dogs don't scoff it) and next day cut the body in two straight down the spine with a clean carpenters saw and cut up the joints however suits you. Bung them in the freezer -job done. Yer first attempt may not be pretty but it will still taste good and ye will improve with practice.

Regards, Ergophobia

by Omnologo | 5th Jul 14, 3:35am 1404488150

Forgive the oxymoron, but the above should be conducted humanely at all cost. It must be an instantaneous process, and not for the faint hearted.

Time spent hanginging improves the product significantly (up to a week, depending on temperature). Also avoid getting water on the carcase at all cost. Have a damp cloth for hands and a bowl of water for your knife. This will ensure an infinetly superior product than that supplied via a meat processing company and supermarket.

Avoid feeding pet dogs fresh offal or meat.

by cowboy | 5th Jul 14, 7:38am 1404502700

humanely? bah stupid domesticated humans.

you think nature, with dogs and wolves is humane?

you think a flock or herd that drives off a predator (dog) or curiousity (when they beat a rabbit to death) are humane?

you think you're better than nature.

they're just trying to sanitise the scary death process. so disney there's no blood.

they seem to have no idea what the consequences of such mentality is.

by dh | 3rd Jul 14, 10:51am 1404341508

I have farming friends who have basically done more or less that for me, it is a win/ win for us both and good meat.

by tim12 | 3rd Jul 14, 9:40am 1404337234

Ask them! I have been farming for 30 years. I can kill a lamb for myself it takes 10 minutes, i cut t into roasts and chops it takes 10 minutes. It's easy.

by steven | 3rd Jul 14, 9:42am 1404337357

It takes 10mins to kill it?

Isnt that a bit, um slow?

;]

regards

by dh | 3rd Jul 14, 10:54am 1404341658

You read out ACC regulations to the lamb. The lamb looks dizzy after about 6 minutes, falls over after 8, and dies after about 10 minutes. Some people might consider this a bit inhumane though.

by steven | 3rd Jul 14, 12:07pm 1404346024

LOL...

I wonder if that would work with Libertarians, problem might be the IQ, may not last 6mins.

regards

by cowboy | 5th Jul 14, 6:51pm 1404543104

you'd have to pay the licensing fee first.

and probably get certified and authorised at an approved training facilty.

It's said about true Libertarian government that you can do pretty much anything you want, provided who find out who needs to be paid first.

by notaneconomist | 3rd Jul 14, 12:29pm 1404347344

I think Tim is referring to the total time.....cut throat, skin and gut !! So Tim is reasonably quick at the full process.

Farmers don't like to micro-manage speech.....kill a sheep doesn't have the same meaning as what a townie would place on it.

And then there is how a bureaucrat would describe it.

Remove sheep from paddock and transfer into a holding pen at the killing shed.

Select appropriate speciment to be slaughtered. Feel the back bone, using correct guidelines as in the specified manual 100 page 596.

Ensure knife is sharp....see page 597 for correct instructions on this process. If you are not sure please report to someone who has received full training in this area. Please be aware that Knives can be sharp and can cause serious injuy. Please be aware that a blunt knife will require user to apply more force than is necessary which can also be dangerous and cause serious injury.

Isolate chosen specimen and hold as per the instructions on page 598 and then turn to page 600 for correct cut and page 601 for correct neck break. Page 602 describes correct bleeding method and restraint of animal while this process is taking place.

By this stage the farmer has killed the sheep, dumped the gut in hole and gone for a cuppa.......

For some however

Turn to page 603 for instructions on correct proceedures for knife cuts to opening up skin on forelegs and back legs and correct knuckle breaking techniques.

Page 605...place gambrel hooks in back legs and attach pulley hook up using pully instructions on page 608. For further information please refer to diagram on page 607. Ensure you know the weight of specimen and have read and understood the OSH manual and paid particular attention to the correct way to use pully and secure pully and apply correct body techniques so as to avoid any back or other body strain while hoisting specimen. Please sign appropriate OSH manual so that we know you have read and understood the process and also please sign OSH manual so that we know you have had full and ongoing training in this area.

Meanwhile there is another 112 pages of instructional advice, best practices and corresponding appropriate details and rigamortis has set in....it's all a bit slow !!

by cowboy | 5th Jul 14, 7:41am 1404502888

the difference is a farmer pays for his time (like all small businesses)

a bureaucrat or employee gets paid for their time.

guess which one makes up most of the rules and publish most of the redundant crap we have to deal with.....

by Brendon | 3rd Jul 14, 10:20am 1404339602

Thanks guys. First I need a proper freezer then I will tell the missus I have a cunning plan....

by Casual Observer | 3rd Jul 14, 3:59pm 1404359972

The regulations around home kill were changed a few years ago. In order to home kill legally you must have owned the animal for 28 days and be involved in it's day to day care or face a $20,000 fine.

http://tvnz.co.nz/national-news/cow-pooling-should-stopped-beef-nz-boss…

Don't go shouting it from the rooftops if you do have a friendly farmer/lifestyler who will sell direct. ;-)

by cowboy | 5th Jul 14, 6:48pm 1404542931

unethical law

by tim12 | 3rd Jul 14, 10:53am 1404341591

I'm not trying to encourage town people to buy straight from the farmer, but my point is where is the value to the people buying at the supermarket. I realise there are many regulations and costs involved in running meat companies. But there are too many people clipping the ticket.

Do town people realise a stock agent charge farmers 6% to sell a cattle beast. Don't get me wrong i think stock agents are an important part of our industry but is'nt this too high? For example a farmer might buy a yearling steer for $700 and sell it a year later for $1050 and pay $63 to sell it.

When there was the last big drought the meat companies were only offering farmers around $72 for a fat lamb and yet the price in the supermarket does'nt change.

by tim12 | 3rd Jul 14, 11:31am 1404343891

Why can't the meat industry be deregulated so that whole sheep can be sold locally in New Zealand. This could be done. Consumers would gladly pay $160 for a whole sheep and cut it up themselves. The problem is that the butchers wouldn't be happy. But what value does a butcher add to sheep meat? Beef is a completely different story and it takes a lot of skill to process

. If sheep could be sold like that here then, on farm stock theft would decrease. The price of lamb would stabilise because more of it would be sold locally

by notaneconomist | 3rd Jul 14, 2:30pm 1404354632

Deregulating would make sense but I guess that too many people are relying on regulation to cause inflation......

I'm not sure too many city men or women would know what to do with a whole carcass anymore!!

by tim12 | 3rd Jul 14, 12:07pm 1404346020

People in NZ used to eat sheep meat. No one i know buys it from the supermarket. As a farmer, the sheep i send to the meat works is 200km away. Why can't more of it be processed locally sold cheaper to locals (less carbon footprint) less middle men. The answer is that this would benefit local consumers and farmers but not the meat industry, not the supermarkets or butchers or big meat processors.

by tim12 | 3rd Jul 14, 2:40pm 1404355204

cutting up a sheep is'nt much harder than cutting a potato to make chips!

by Simon | 4th Jul 14, 11:34am 1404430495

Good diversification of dairy, sheep and beef in the mighty Manawatu... No worries there.

by Simon | 4th Jul 14, 11:44am 1404431052

2006-07 53.89

2007-08 58.55

2008-09 89.83

2009-10 81.30

2010-11 117.64

2011-12 113.58

2012-13 85.30

Price per sheep over the years.

Farmers in manawatu have got a 60% pay increase over last 5 years of so.

by Hamish | 4th Jul 14, 3:06pm 1404443204

I wonder what their cost increase has been for the last 5 years or so?

by hugeorgan | 4th Jul 14, 4:06pm 1404446791

I think what you are missing here is that the supermarket makes 100% mark up. So after taking that into account the meat company make a small margin. As SFF turnover of 1billion for 60m loss would indicate. Also tim12 the meat industry isn't regulated and any butcher or supermarket can sell lamb any way they want.

by tim12 | 5th Jul 14, 12:48pm 1404521287

I think this is the big difference between dairy and sheep and beef. The fonterra is working for the farmer. While in sheep and beef all the parties involved worked independently for their own gain ( and often against each other).Co-op vs free market.

There is no incentive for butchers and supermarkets to sell lamb cheaper. If poorer New Zealand families could afford to eat lamb, They would sell alot more of it locally and this could maybe stabilise the market for farmers as exchange rates would not have as big an influence on price.

by cowboy | 5th Jul 14, 5:18pm 1404537483

That's an outsiders view. Fonterra isn't working for the farmer supplier. Farmer suppliers of different co-ops noticed that the co-ops were frequently stepping on each others toes. Individiaul co-ops wren't really big enough to become recognised brands by our foreign traders, much of the infrastructure was duplicated, and often promotional efforts to our customers tended to result in one NZ co-op competing with another NZ co-op with no gain for anybody. Not the supplier, not the co-op, and not the customer.

Some dominant players emerged and started buying up the smaller players. Now the smaller players were functionally effective in their own right. They had good product, solid suppliers, and great staff....but were small and had to tailor to niche markets because of the above criteria (niche because setting up a dairy supply processing factory is a long term investment. you can't just flick from one product to another because the market demand shifts.)

with immanent takeovers, that wre just going to cost shareholders, coops and customers dearly, with only the banks and lawyers getting rich, it was decided to be proactive with the merger process. Several smaller co-ops agreed to merge rather than fight the takeover.

Then the way was opened for formation of a nationwide organisation with a single set of rules and quality controls. It was a massive job finding trustworthy leaders that would look to the famer-owners (who owned the companied) as the priority, rather than feathering the executive nest, or trying to move into "the corporate big time" and end up copying all our competitors we;d been beating for years. Massive job making sure there was some fairness, where individual suppliers would be looked after, rather than being taken advantage of - and putting the words in stone to see that it would stay that way.

So it was the farmer-suppliers that made fonterra, fonterra didn't come from the top (anymore than chch rebuild has come from their mayor....)

Of course, it's all changed since TAF (and the proponents of TAF) have been permiotted to re-write the rules. for now we can only hope on good luck and their charity (and that they won't give away too much in their attempts to buy friends (who will forget them aka "yes but what did you give me -today- ))

When the meat industry players are ready to make peace offerings and stop cutting throats, only then will a larger body have a chance...

by tim12 | 5th Jul 14, 2:12pm 1404526323

I think that what meat producers need is not higher prices but stable prices. A dairy farmer gets paid the same price/ kg in a drought or a good season ( although their production is affected) .Meat producers traditionally got hammered on price and production in a drought. There's too much uncertainty. Although in recent years some meat companies are less inclined to drop prices like they used to, as more sheep and beef farmers give up or go into dairy support.

by tim12 | 7th Jul 14, 7:42am 1404675727

If supermarkets are making %100 mark up on lamb. I'd be interested what their mark up on chicken and pork is? ( i would guess higher) Hence probably why there is no incentive for them to sell lamb cheaper as it would compete with meats that they are making a better margin on. Lamb competes directly with other meats and yet imagine the uproar if we farmed lambs in small cages and pumped them full of hormones.

by tim12 | 7th Jul 14, 7:42am 1404675733