Farmers' confidence in New Zealand's agricultural economy is at its highest level since 2013, led by a more optimistic outlook for dairy, rural lending specialist Rabobank said.

The bank said its latest rural survey showed confidence had risen for the second quarter in a row.

Almost half of all the 450 or so farmers surveyed expected the rural economy to improve in the coming 12 months, resulting in overall net confidence shooting up to a reading of plus 35 per cent from plus 3 per cent at the last survey.

The survey - completed earlier this month - found that the number of farmers expecting the rural economy to improve had risen to 48 per cent, up from 25 per cent last quarter.


It showed 37 per cent were expecting it to remain the same, down from 52 per cent, while 13 per cent expected the agricultural economy to worsen (down from 22 per cent).

The survey comes at a time of renewed optimism about the future direction of world dairy prices.

Whole milk powder prices - which are key to Fonterra's farmgate milk price - traded at US$2793 a tonne at the last GlobalDairyTrade auction on September 7, having slumped to US$1856/tonne in August last year.

Expectations are that the next auction, due tomorrow morning, will show another improvement.

Fonterra - the country's biggest dairy co-operative, is on Thursday expected to a big gain in its net profit after tax - perhaps one of the strongest since its inception in 2001.

Earlier in the week, specialised infant formula and dairy ingredient's manufacturer, Synlait Milk, reported a threefold increase in net profit to $34.4 million.

Rabobank said farmers across all sectors were more optimistic about the prospects for the agricultural economy as a whole with dairy farmers showing the biggest increase in optimism.

Of dairy farmers surveyed, over two-thirds (67 per cent) expected conditions to improve, the highest result registered on this measure since October 2007.

Hayley Moynihan, Rabobank's New Zealand general manager for Country Banking, said the jump in confidence was largely attributable to farmers' expectations that commodity prices - particularly for dairy products - have begun to ascend from the bottom and will continue to rise over the next 12 months.

"Since the last survey, in July, three consecutive increases in GlobalDairyTrade (GDT) results have lifted commodity prices by 25 per cent and given those involved in the dairy sector a much-needed boost," she said in a commentary.

"The big jump in the overall confidence reading is also a reflection of how low confidence in the agricultural economy has been over the past two years contributing to confidence reaching near-decade lows in several survey results during this period," she said.

Hayley Moynihan, general manager country banking at Rabobank New Zealand. 7 March 2016 New Zealand Herald Photograph by Michael Craig
Hayley Moynihan, general manager country banking at Rabobank New Zealand. 7 March 2016 New Zealand Herald Photograph by Michael Craig

The improved outlook for the rural economy as a whole was also reflected in farmers' expectations for their own business performance over the next 12 months.

Overall 44 per cent of the country's farmers expected their business to improve over this period, with 16 per cent expecting business performance to worsen.

"On top of dairy farmers vastly improved expectations for their own businesses, the survey also signalled a potential lift in milk supply for the coming season with 31 per cent of dairy farmers expecting their production to increase and only 15 per cent expecting it to fall in the 16/17 season," she said.

In contrast to the increasing optimism amongst dairy farmers, expectations of sheep and beef farmers for their own business performance in the coming 12 months dipped.

The result was not wholly unexpected as, despite lamb prices rising in both the North and South Islands, and farmgate beef prices remaining steady, the high New Zealand dollar was currently providing a challenging trading environment for the sheep and beef sector, the bank said.