Taranaki farmers face uncertain outlook despite grass growth after drought
The grass may be growing again in the drought-stricken coastal area of Taranaki, but the outlook for many farmers there is far from rosy.
Governor Graeme Wheeler last week refused to throw farmers a bone, leaving the official cash rate unchanged at 2.75%.
Wheeler's decision was widely anticipated and came as no great surprise to Federated Farmers president William Rolleston, who said drought now looms as a major factor when the cash rate is revisited in December.
"I think we are still facing a dollar that is stubbornly high," said Rolleston.
"I know it has come off a long way but it is still over-valued in most people's minds, so one would hope that if interest rates come down again that will take some pressure off the dollar. But the governor is quite right in flagging the potential of the drought situation with El Nino. That is an economic risk.
"The commentary suggests he will likely drop it in December but your guess is as good as mine. If he's looking seriously at drought and milk prices coming off, those two things might persuade him to drop the interest rate again. But we don't know what the situation is just yet. Any drop in interest rates is welcomed by farmers who may have mortgages."
Wheeler says much would hinge on what happens in overseas markets – particularly China, with growing fears their economy could go off the boil -- before any decision was made to drop the ORC.
"Financial market volatility has eased in recent weeks, but concerns remain about the prospects for slower growth in China and East Asia especially. Financial markets are also uncertain about the timing and effects of monetary policy tightening in the United States and possible easing elsewhere.
"The sharp fall in dairy prices since early 2014 continues to weigh on domestic farm incomes. However, growth in the services sector and construction remains robust, driven by net immigration, tourism, and low interest rates.... It is appropriate at present to watch and wait," Wheeler.
"Global dairy prices have risen in recent weeks, contributing to improved household and business sentiment. However, it is too early to say whether these recent improvements will be sustained."
