Falling dollar and end of drought boost farmer optimism - survey

Sheep and beef producers have a more positive outlook. Photo / Alan Gibson

The sharp drop in the value of the New Zealand dollar and a swift end to last summer's drought has significantly improved the outlook for farmers, says Rabobank.

In its latest quarterly rural confidence survey, the specialised rural lender said 54 per cent of the 450 respondents expected the rural economy to improve over the next 12 months, compared with just 28 per cent in the previous survey.

Just 8 per cent expected conditions to worsen, compared with 29 per cent in the previous quarter.

Rabobank New Zealand chief executive Ben Russell said higher dairy commodity prices and a looming drought-induced supply shortage of lamb and beef had boosted confidence.

"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."

The dollar traded yesterday at US77.85c and may fall further if the United States economy continues to improve, according to some market strategists. At current levels, the kiwi is 10.25 per cent from its peak in April of US86.75c and 12 per cent down from its post-float high of US88.43c, set in August 2011.

Russell said farmers would be relieved that the difficulties of the past 12 months were behind them. The severe drought, particularly in the North Island, had knocked farmer confidence, as had the consistently high currency and generally difficult economic conditions.

Dairy farmers led the optimists in the survey, with 61 per cent expecting the rural economy to improve in the coming 12 months.

Autumn had enabled a swift recovery from the drought for most farms, which meant spring milk production was unlikely to suffer significantly.

Sheep and beef producers and mixed land use farmers also had a more positive outlook. Fifty-two per cent of sheep and beef farmers expected an improvement in the agricultural economy, up from the 24 per cent in the last survey.

Russell said the looming shortage of lamb and beef production following the drought was fuelling optimism as this was likely to mean higher farm gate prices in the 2013/14 season.

Sheep flocks around the world had contracted again and this would tighten lamb supply globally over the coming year, Rabobank said.

There was also increased optimism among horticulturists, with 41 per cent expecting the rural economy to improve, up from 18 per cent. Russell attributed this to the easing of the dollar because most main horticultural crops were exported.

Rural property sales up 17%

Rural property sales are up, despite a drop in the overall selling price for farms. Latest Real Estate Institute data on New Zealand's rural property market for the three months to June show about 475 farm sales occurred during the period - 17 per cent up on the same period last year.

Quarterly figures indicated a drop, with 7.4 per cent more farms sold in the three months to May than in the three months to June.

The All Farm Price Index, which adjusts for differences in farm size, location and farming type, also showed prices had dipped, over the year and between quarters.

Between the May-June quarter this year, the index fell by 2.6 per cent. A year-on-year comparison showed the index eased 0.8 per cent between the three months to June and the same period last year.

Grazing farms comprised nearly half (48.1 per cent) of all sales during the three months to June. This was followed by dairy (13.9 per cent), finishing (19.4 per cent) and horticulture properties (8.9 per cent).