Dairy gloom leads farmer confidence to 10-year low

A majority of dairy farmers expect a poorer farm business performance over the next 12 months. Photo / Mark Mitchell

New Zealand farmer confidence slumped to the lowest level in a decade in the second quarter as dairy farmers turned gloomy.

Farmer confidence in the agricultural economy turned to a negative net 45 per cent in the second quarter, from a positive net 13 per cent in the first quarter, touching its lowest level since early 2006, according to Rabobank's latest rural confidence survey.

The sharp fall in sentiment in the latest survey was led by dairy farmers, with 58 per cent expecting a poorer farm business performance over the coming 12 months, up from 23 per cent in the previous survey, while just 16 per cent expected it to improve, down from 44 per cent previously.

While milk processors are expected to increase their payouts to farmers for the upcoming season, levels would probably still be below the full production cost for many farmers, Rabobank said.

"In response to current pricing signals, we are seeing dairy farmers cut back their rates of supplementary feed and some lower their stocking rates by culling lower-performing cows, and maximising feed available to a higher-quality, but smaller herd," said Rabobank New Zealand chief executive Ben Russell.

Subdued sentiment in the dairy sector was flowing on to other agricultural sectors and service providers and the wider New Zealand economy, he said.

"In recent months, we have seen the weakness in dairy prices contribute to sluggish growth in the New Zealand economy, weighing on the dollar and increasing expectations of further interest rate cuts," Russell said.

Some 56 per cent of those surveyed expect conditions in the rural economy to worsen, up from 23 per cent in the first quarter. Those expecting similar conditions to last year declined to 32 per cent from 40 per cent, while just 11 per cent anticipated an improvement, compared with 36 per cent.

Overall, farmers revised down their expectations for their own farm business performance to a net negative 17 per cent, from a net positive 14 per cent in the first quarter.

The survey of about 450 farmers was completed this month.