Survey: Farmer confidence plunges

The European sovereign debt crisis and concerns about growth out of China and the United States has farmers bracing for a slowdown. Photo / Sarah Ivey

Confidence has taken a sudden turn for the worse according to a Federated Farmers survey, despite what for many was a bumper period for production over the March year.

A net 39.5 per cent of respondents expected their farm's profitability to worsen over the next 12 months, a big turnaround from January when a net 31.6 per cent expected their profitability to improve, mostly because of lower commodities prices and the persistently strong New Zealand dollar.

Farmer confidence, thanks to ideal growing conditions, had been running high at the start of the year.

"This has gone fully into reverse gear with most farmers now expecting farm profitability will worsen over the coming year," Federated Farmers president Bruce Wills said in a statement. Wills said a pullback in sentiment was expected, but the size of the drop had come as a surprise.

"The 2011/12 season was probably one of the best in recent times for dairy, meat and wool and would be near impossible to top," he said.

"Instead of a slight easing, farmer confidence found the trap door and jumped right in," he said.

The past few months have seen large falls in commodity prices, with the June 2012 ANZ World Commodity Price Index dropping 12.3 per cent from January.

Wills said the exchange rate had not fallen to the same extent as commodities prices, so that had eaten into farmgate returns.

The European sovereign debt crisis had been extremely negative for sentiment, as had weak growth out of Japan and the United States.

"As the global economy is on the edge, questions remain if China's high rates of growth can be sustained,' Wills said.

While dairy production in the United States would be hit hard by drought, the culling of dairy cows there may increase the supply of beef. In the short term that could soften demand for New Zealand beef, Wills said.

Despite a negative outlook, many farmers still expect to reduce debt, although worsening profit expectations appear to be putting a brake on farmers paying down debt, Wills said.

The survey showed a net 38.7 per cent of respondents expected general economic conditions to worsen over the next 12 months compared with just 4.4 per cent in January.

A net 30.4 per cent of respondents expected to increase production over the next 12 months, down from 47.7 per cent in January.

Federated Farmers economist Nick Clark said farmers had enjoyed the double whammy of high commodities prices and good growing conditions last year. "The thing is commodities prices have fallen back quite sharply in the last six months in particular, and that is now affecting farmgate prices," he said. "The fall of commodities prices and uncertainty as to what the weather might do has caused farmers to be a bit more cautious," Clark said.

There were 900 responses to the Federated Farmers survey, which was backed up by a Ministry for Primary Industries report, which said the March 2012 year was big for producers but earnings had come under pressure.

The ministry said good weather led to a continuation of better-than-usual pasture growth during the quarter.

As a result, farmers achieved near-record carcass weights for slaughtered livestock and an 11.5 per cent increase in milk solids production compared to the same quarter in 2011.

The primary sector continued to be an economic driver, with total primary sector exports accounting for 71 per cent of all merchandise exports in the year to March 2012, the ministry said.

But the stronger New Zealand dollar coupled with easing international dairy prices meant that overall, primary sector export revenue for the quarter was down 2.4 per cent on the previous year, at $8.3 billion, the ministry said.

At the same time, total export revenue for the year to March 2012 was up 6.2 per cent at $32.3 billion.

Total seafood export revenue was up by 9.4 per cent in the March quarter.

Forest product export revenue declined 14 per cent, largely due to significant declines in log and pulp exports. However it was still the sector's second-best quarter on record, the ministry said.