For the first time in two-and-a-half years, New Zealand farmers expect their on-farm spending to increase and farm debt to reduce as profitability improves, a Federated Farmers survey shows.

Farmer optimism has largely increased after global dairy prices have improved on the back of tighter global supply, however Federated Farmers president William Rolleston warned that the overall results mask differences between sectors.

"This is good news but the improvement in confidence is fragile. The result was influenced heavily by dairy farmers who saw big increases in dairy commodity prices in the second half of 2016, which have since come back a bit," Rolleston said.

He noted the ANZ Commodity Price Index for dairy was up 41 per cent in New Zealand dollar terms from July to December, which enabled dairy giant Fonterra Co-operative Group to increase its milk price forecast for the current season to $6 per kilogram of milk solids.


"In contrast, the ANZ Commodity Price Index for meat, skins and wool went down 6 per cent over the same period. Sheep and beef cattle numbers have also continued to fall due to economic factors and the lingering impacts of drought in some areas."

The net score from the Federated Farmers mid-season Farm Confidence Survey shows that farmers expect their on-farm spending to increase. According to the data, the net score moved from -27 per cent in July 2016 to +2.5 per cent in February 2017.

It noted, however, that while the number of farmers predicting an increase in spending is up from 12 per cent in July 2016 to 24 per cent in February 2017, just over half of farmers expect there will be no change to the amount that they spend in the next 12 months. Dairy farmers are the most confident, with 17 per cent more farmers saying their spending will increase in this survey compared to the July 2016 survey.

Regarding debt, the net score is -15 per cent, as 31 per cent expect debt to reduce this coming year, 40 per cent expect it to remain the same and 16 per cent expect it to increase. The proportion of farmers foreseeing a reduction in debt is up from 14 per cent in July 2016.

For the first time in three years, farmers' confidence in the profitability of their farms is positive. While most farmers indicated that they expect their future profitability to remain the same as it is currently, the percentage expecting profitability to improve is 36 per cent.

Overall, confidence in the general economy has improved, but remains in slightly negative territory, with a net score of -2 per cent, according to the survey. In July the net score was -12 per cent. Dairy farmers were the most positive group while meat and fibre farmers were the least positive.

Similar to other sectors, the farming sector is also facing some labour constraints, the survey showed.