KEY POINTS:
A recession in the economy would be good news for farmers, a rural banking manager told a gathering in Masterton this week.
Ben Russell, Rabobank general manager for rural New Zealand, was one of three speakers addressing about 100 farmers at the Masterton Cosmopolitan Club.
He said only
two things would break the cycle of high interest and a high New Zealand dollar, which are keeping returns low.
One was a change in New Zealand's tax laws, which Mr Russell said favour investment in housing, and the other was a recession.
Mr Russell said he could not see changes in tax law happening soon, so the other option of a significant slowdown in the economy was more likely, "which would be good for New Zealand agriculture".
A slowdown in spending, or a recession, "would bring interest rates and the dollar down", Mr Russell said, "which would be good for farmers".
Studies showed that in New Zealand when the dollar is high, farmer confidence is low, just as in Australia when there is low rainfall.
Because of low returns, especially in lamb prices, "cashflow is very tight, and a lot of people are seeing it a bit hard to get out of the woods", Mr Russell said. "Lamb prices are pretty depressing at the moment."
On top of this, "farm expenses are increasing relentlessly", led by fuel price rises.
Long term, however, Mr Russell said, lamb prices were set to improve because of changes in the overseas situation.
Australia had had record lamb supply for the past two years, which had affected prices, but Mr Russell said this was driven "more by drought than production", as drought-stricken farmers offloaded stock.
He said there had been a boom in lamb prices several years ago as lamb developed a premium over beef, and part of the price drop was a "correction", as the people objected to the difference.
However, Mr Russell said prices should pick up as both Australia and Britain were likely to have lower production next year.
Farm subsidies in Britain were no longer tied to production but to environmental measures, Mr Russell said.
Internationally, there were not many producers of lamb, and Australia and New Zealand were among the major players.
"I'm not too sure why there's not a bit more co-operation (between the two)," Mr Russell, an Australian, said.
"The oil-producing countries can do it."
Meanwhile, New Zealand beef had an advantage over most other countries in the world, Mr Russell said, in growing from grass and not grain.
The growth of the "biofuel" industry was driving up grain prices, which was set to increase expenses for other beef farmers, particularly Americans.
Finally, Mr Russell said there was good news for dairy farmers.
"All the indications are (that) dairy farmers are on the way up, and not by a small amount. There's no stocks left."
Mr Russell said global dairy prices had risen 10 per cent in March, which was "a huge amount", although the high New Zealand dollar had cost farmers some of that benefit.
- WAIRARAPA TIMES-AGE