Farm outlook brighter next year, says ANZ

Cautious beef, dairy and sheep farmers will start reopening their chequebooks next March as gross incomes rebound after a big fall this season, the ANZ Bank predicts.

The forecast comes despite a warning of overall world commodity price falls, as the bank believes the dollar will weaken further.

It says gross pastoral farming incomes will drop an estimated 20 per cent this season, which ends next month, but could rebound by up to 20 per cent next season.

"The million-dollar question is when that encourages the rural chequebooks to be reopened," said chief economist Cameron Bagrie. "Our feeling is sometime next year when they actually start to see those cheques arrive."

The bank's analysis said prices suggested gross incomes for meat and wool had fallen by about 5 per cent and risen 4 per cent for dairy.

When factors such as currency hedging and balance sheet restructuring were included, it was estimated this season's aggregate gross farm income had fallen 20 per cent.

The recent fall in the dollar's value would not feed into agricultural incomes till next season, given that the bulk of this season's product was already sold.

But assuming a "modest" easing of commodity prices and a lower dollar, revenue could recover by up to 20 per cent next season.

The bank is forecasting US53c to the dollar by mid-2007.

ANZ said a declining trend in New Zealand's key commodity prices was arrested last month. There was a 1.6 per cent rise in the bank's world commodity price index, led by price gains for apples, aluminium and skins, partially offset by falls for beef, lamb and wool.

And the dollar's recent decline meant the NZ dollar commodity price index rose a further 4 per cent last month to a four-year high.

However, the bank warned that most leading indicators for industrialised nations signalled a global industrial slowdown was building.

A further fall of between 5 and 15 per cent in the world commodity price index could be expected, while "a falling NZ dollar exchange rate over the next year will provide a material offset to this decline".

Meanwhile, a sheepmeat report from Rabobank predicts a return to above-average prices for lamb in the medium-term.

Food and agribusiness senior analyst Hayley Moynihan said New Zealand farmers would benefit from lower British and Irish production.

But challenges included more Australian lamb production and rising costs.

Lifting productivity in New Zealand further looked increasingly challenging and gains at the rate of the past 10 years should not be expected, Moynihan said.

"Producers will need to be actively involved with processors and research bodies to determine the basis for future growth, assess how to continue the productivity growth trend and ensure that sheep production remains an efficient and competitive enterprise."