Farmers' economic confidence improved in the first months of 2010, boosted by sheep and beef prices although optimism in some regions was restrained by drought conditions, a new Rabobank survey shows.

It found 34 per cent of farmers expected the rural economy to improve in the next year, up from 32 per cent previously, while the proportion of farmers expecting conditions to worsen fell to 11 per cent from 26 per cent.

The Rabobank rural confidence survey was completed this month but before yesterday's announcement by Fonterra that it had increased its milk price forecast for this season by 40c to $6.10 a kg of milksolids.

Rabobank general manager rural New Zealand Ben Russell said the survey showed much of the improvement in rural confidence had been driven by sheep and beef farmers, who had a more optimistic outlook about their sectors.

Factors working in the favour of sheep and beef producers included a small fall in the New Zealand dollar during the survey period, and good news in terms of commodity prices in the sectors.

Lamb prices, in particular, had held at higher levels than expected during the main processing season, due to good offshore market prices, Russell said.

Farmgate lamb prices for the season to date had averaged around $80 a head, compared to about $70 a head expected at the start of the processing season.

Beef prices had also improved earlier than usual during the peak processing season from the lows before Christmas.

Among dairy farmers, 94 expected the agricultural economy to either stay the same or improve, compared to 88 per cent in the previous survey.

Regional differences were noticeably pronounced in the latest survey, with 33 per cent of pessimistic upper North Island survey respondents citing drought as a concern, said Russell.

In contrast, 14 per cent of optimistic farmers in the lower South Island credited good seasonal conditions as reason for the economy improving.

On the performance of their own businesses, 35 per cent of farmers expected an improvement and 15 per cent expected it to deteriorate.

Investment expectations were little changed with 88 per cent expecting to maintain or increase farm business investment.

The latest survey also found 56 per cent of farmers expected the value of their land to remain static, up from 52 per cent in the previous survey, while 26 per cent thought the value of their land may fall in the coming year, up from 23 per cent.

Sheep and beef farmers were the least optimistic about land prices with 34 per cent expecting a decrease and 13 per cent expecting an increase, Russell said.

Among dairy farmers, 20 per cent expected land values to rise, with the same number expecting a decline.