Bearish global dairy outlook and lower milk prices main culprits in Rabobank survey
New Zealand rural confidence levels have fallen to a two-year low thanks to plunging dairy prices, according to Rabobank's latest quarterly rural confidence survey.
The survey, completed this month, showed rural sentiment was at its lowest level since September 2012, with 37 per cent of farmers having a negative outlook for the next 12 months, up from 24 per cent in the previous survey. Rabobank's survey comes as Fonterra releases its updated forecast for 2014/15, with many private forecasters expecting the co-operative to lower its farmgate milk price to the mid to low $5 per kg mark from the current forecast of $6 per kg.
The bank said the number of respondents with a positive view of the rural economy fell to 20 per cent from 25 per cent previously. A total of 42 per cent expected conditions to remain the same.
While dairy farmer confidence had declined considerably, beef and sheep farmer sentiment - though tempered - remained at robust levels, the bank said.
Rabobank New Zealand chief executive Ben Russell said the softening in overall rural confidence was a clear reflection of the impact of the bearish global dairy outlook and lower milk prices on dairy farmer sentiment. "Falling dairy commodity prices are the overwhelming factor at play here," he said.
At the time of the survey being taken, international prices had fallen by 45 per cent from their February peak.
"And with global dairy supplies continuing to increase from all key exporting regions, a significant price recovery is not imminent," he said.
Farm commodity prices move in cycles and it was clear that commodity prices were entering a lower part of the cycle.
"While this is always a difficult time, the important thing to remember is the medium to long-term picture for the dairy industry is strong," Russell said. Dairy farmers were also cautious with the dairy industry approaching a critical time in the year, with the peak production and selling period for New Zealand milk just weeks away, he said.
Almost half of the dairy farmers surveyed expected the performance of their own farm business to worsen in the coming 12 months, up from 30 per cent in the previous quarter.
Just 20 per cent of dairy farmers expected an improvement in performance, compared with 27 per cent previously. A total of 32 per cent expected performance to remain stable.
While there was also a tempering in sentiment among beef and sheep farmers confidence in this sector remained strong.
Russell said lamb prices were up on the previous season and beef prices were currently hitting record highs due to tight global supply.
Despite the decline in overall confidence, New Zealand farmers' investment intentions were overall stable, the Rabobank survey showed.
The survey showed that the appetite for investment in dairy had waned while sheep and beef farmers' investment intentions were improving.
Russell said this change in sector investment dynamics may be an early indication that the decline in the national sheep flock and the rate of dairy farm conversions were slowing.
Rabobank's rural confidence survey, which has been conducted since 2003, covers about 450 farmers each quarter.
See the recent fall in world dairy prices here: