Dairy downturn knocks farmers' confidence

New Zealand's rural confidence is close to its lowest point in 10 years, Rabobank said. Photo / Mark Mitchell

New Zealand's rural confidence is close to its lowest point in 10 years, Rabobank said.

The rural lending specialist said "significant and persisting" challenges in market conditions continued to weigh heavily on the nation's farmers.

The latest Rabobank rural confidence survey, completed in early March, showed that 53 per cent of the 450 or so farmers surveyed had a pessimistic outlook on the agricultural economy over the coming 12 months, up from 30 per cent in the previous survey taken late last year.

Only 11 per cent were expecting conditions to improve - less than half the 24 per cent who had an optimistic view in the last quarter.

With 34 per cent expecting the agricultural economy to remain the same as the previous year, the net rural confidence reading came in at minus 42 per cent, down from minus 6 per cent in the previous survey.

Conversely, growers in the horticulture sector were increasingly optimistic about their business performance in the year ahead.

Rabobank's New Zealand general manager for country banking, Hayley Moynihan, said the severity of the current dairy downturn had hit home.

Moynihan said the last time confidence was this low was in February 2006, when the general outlook had been low across all farmers as they contended with a high New Zealand dollar, record low wool prices and softening lamb prices.

"Given the length and severity of the current downturn ... in the dairy sector, which has such a dominant position in New Zealand's agricultural economy, it is not surprising that rural confidence is again at this low level," she said.

Farmgate milk prices are now down at around $3.90 per kg of milksolids, well short of the $5.25 required for farmers to break even.

The effects of the dairy downturn are not just confined to the sector itself, but have a knock-on impact to the wider economy and naturally influences sentiment across the board in other rural sectors, she said.

The survey showed that the factor overwhelming driving increased pessimism among farmers this quarter was commodity prices, reflecting the persisting downturn in the global dairy market and recognition that a price recovery was still some time away.

Heavy going

• NZ farmer confidence declined in the past quarter to reach a near 10-year low.

• Concern about falling commodity prices was the main driver.

• Dairy farmers continued to be the most pessimistic.

• Sheep and beef sector confidence was also down on the back of lower lamb prices.

• Horticulture growers increasingly optimistic about their future business performance.