Fonterra’s exit from Australia ‘a major event’
Fonterra’s impending exit from the Australian dairy industry is a major event but the story doesn’t change too much for farmers.
This compares to 27% in the previous quarter.
While half of the surveyed farmers expect stable conditions, only 11% expect conditions to improve - down from 17% previously.
Rabobank New Zealand CEO Ben Russell says the further fall in confidence reflects the uncertain global economic environment that New Zealand farmers are operating in, which has placed downward pressure on commodity prices.
"For many, coming out of a season where the planets aligned in terms of climatic conditions and commodity prices, many are pragmatic in their outlook that these conditions are unlikely to be repeated. Farmers have also seen commodity prices come back off their more recent highs, while the New Zealand dollar has remained very strong," he says.
Of those farmers expecting conditions to worsen, nearly half were concerned about global markets (48%), up from 29% in the previous quarter.
Softer commodity prices also weighed on farmer sentiment, with 46% citing this as the main reason for their pessimism, compared to 25% previously.
The strong New Zealand dollar also remained a prominent factor, with 30% nominating this as a concern, down slightly from the 39% in the previous survey.
By sector, sheep and beef producers were the least optimistic, with only 9% of farmers expecting conditions to improve (down from 13%) and 36% expecting a deterioration (up from 24%).
Russell says the fall in confidence reflects the decline in lamb prices from historically high levels and the state of the economy in key export markets.
"Tough trading conditions in the UK and EU markets, combined with the high dollar have seen lamb prices drop by around 20 to 25% since this time last year. While beef prices in the all-important US manufacturing market remain strong, farmers have not yet seen this fully materialise at the farmgate," he says.
Dairy farmers also lowered their expectations for the coming year, with just 10% expecting an improvement in conditions - down from 21% in the previous quarter.
"The current Fonterra milk price of $5.50 per kilogram of milk solids, is down around 9% from last season's lowered forecast, as demand fails to keep pace with strong global supply. At current commodity prices and currency levels there remains considerable downside risk to this forecast payout," he says.
Farmers remain more optimistic about the performance of their own individual farm business than that of the agricultural economy as a whole; although this confidence index has fallen into negative territory for the first time since May 2009.
While half the respondents expect their farm performance to remain stable, 21% are expecting an improvement (down from 28% last quarter), and 29% are anticipating a poorer farm business performance.
Russell said while external factors had weighed on the short-term outlook, investment intentions indicated the underlying confidence in the farming sector.
"The survey indicated that 89% of farmers expect to maintain or increase their level of on-farm investment over the coming year," he says.
"Pleasingly, investment intentions in the horticultural sector continue to improve, with 33% of producers in this sector looking to increase their investment."
