Farmers are reporting a much improved outlook for the year ahead, with a big rally recorded in the latest quarterly Rabobank rural confidence survey.
Completed late last month, the survey shows that 54 per cent of farmers expect the rural economy to improve over the next year, compared with 28 per cent in the previous survey. Only 8 per cent expected conditions to worsen, down from 29 per cent in the past quarter.
Rabobank New Zealand chief executive Ben Russell says several factors are helping to lift farmer spirits, particularly higher dairy commodity prices and a looming supply shortage in lamb and beef following the drought.
"The lower dollar has also been another cause for optimism, with 27 per cent of farmers who expected conditions to improve nominating the falling dollar as the reason."
Russell says many farmers will be breathing a sigh of relief that the major difficulties of the past 12 months are behind them and feeling that conditions can only improve.
The severe drought experienced in many parts of the country, particularly in the North Island, had "really knocked farmer confidence," as had the consistently high currency and overall generally difficult economic conditions.
"Many are now taking cheer that the worst of these conditions are now behind them."
Dairy farmers led the optimism in the survey, with 61 per cent expecting the rural economy to improve in the coming 12 months.
"The forecast high milk price for 2013/14 due to higher dairy commodity prices was a big contributor to optimism among dairy farmers," Russell says.
Also, autumn conditions enabled a swift recovery from the drought for most farms, which means spring milk production is unlikely to suffer much negative impact.
Sheep and beef producers and mixed farmers also had a more positive outlook. A total of 52 per cent of sheep and beef farmers expected an improvement in the agricultural economy, up from the 24 per cent who had that expectation in the past survey.
Russell says the looming shortage of lamb and beef production following the drought is fuelling optimism among beef and sheep farmers, as this is likely to be reflected in higher farm-gate prices through the 2013/14 season.
"Sheep flocks around the world have contracted again and this will tighten lamb supply globally over the coming year," he says.
There is also increased optimism seen among horticulturists, with 41 per cent expecting the rural economy to improve, up from 18 per cent in the previous quarter. Russell says positive sentiment in this sector is likely to have been driven by the easing of the New Zealand dollar, with most of the main horticultural crops exported.
The Rabobank survey also shows that farmers are increasingly positive about the prospects of their own farm businesses. A total of 55 per cent of those surveyed expected improved performance of their own farming enterprises in the next year, compared with 42 per cent who had that expectation three months earlier in the previous survey. Only 10 per cent expected their business performance to worsen.
Dairy farmers were the most positive, with 72 per cent expecting an improvement.
"This clearly reflects the forecast 2013/14 milk price at $7.00/kgMS, which is more than 20 per cent higher than the prior season's price," Russell said.
The improved confidence levels meant more farmers were intending to invest more in their businesses.
A total of 32 per cent expected to increase investment in the next 12 months, up from 26 per cent in the previous quarter. Only 7 per cent indicated they would reduce investment, compared with 14 per cent in the last quarter.
Russell says this represents the highest investment intentions among farmers since December 2011.
It was not all good news in the survey, however, with business viability remaining an issue for sheep and beef farmers, despite their improved optimism about the agricultural economy.
Of the sheep and beef farmers surveyed, 53 per cent consider themselves just viable or unviable. This is higher than the number with that view last quarter which was 50 per cent.
"That said, the survey did show that approximately a quarter of sheep and beef farmers expect to increase the total investment in their business and 85 per cent expected to increase or maintain their stock numbers over the coming year," Russell says.
Dairy farmers are more confident about their business' viability, with 73 per cent rating their businesses viable or easily viable.
A total of 41 per cent of dairy producers also expect to increase investment in their farm businesses and 91 per cent expect to maintain or increase stock numbers.
The Rabobank rural confidence survey is administered by independent research agency TNS, interviewing a panel of 450 farmers each quarter.
Results at a glance
New Zealand farmer confidence rallied on back of stronger dairy prices and reduced sheep and beef supply.
Weaker dollar and end to drought also fuelling optimism.
Highest investment intentions among farmers since December 2011.