Price rises offset doubts

Of sheep and beef producers surveyed, 75 per cent are expecting an improvement.

Strong sheep and beef prices have helped boost confidence in the rural sector, even though dairy producers remain pessimistic as doubts continue to hang over future dairy prices.

The latest Rabobank rural confidence survey shows that although national rural confidence remains at low levels overall, there was a strong spike in optimism reported by the sheep and beef sector during the last quarter.

Rural real estate experts say it is still too early to gauge accurately the full impact the fall in dairy commodity prices will have on farm prices.

But they say the increase in sheep and beef prices will encourage interest in this sector of the rural property market.

The Rabobank survey, which has been conducted since 2003, found the number of farmers expecting the rural economy to improve during the next year had climbed slightly to 23 per cent during the quarter ending last month.

This was up from 20 per cent during the previous quarter.

Rabobank New Zealand chief executive Ben Russell said sheep and beef farmer sentiment was markedly bullish, with three-quarters of the sheep and beef producers surveyed ( 75 per cent) expecting an improvement in the performance of their own farm businesses in the coming year.

This had spiked from 48 per cent with that expectation last quarter.

The Rabobank rural confidence survey is conducted by an independent agency and includes an interview panel with about 450 farmers each quarter.

Russell said only 2 per cent of producers in the sheep and beef sector were anticipating the performance of their own farm business to worsen in the next 12 months, down from 7 per cent in the previous survey.

"This dramatic increase in optimism is driven by record prices being seen by New Zealand beef and sheep producers, underpinned by demand from the United States, and also higher lamb prices compared to the previous season."

Russell said sheep and beef farmers were benefiting from a firm price outlook with early-season farm gate prices up about 5 per cent for lamb and 30 to 40 per cent for beef compared with last year.

The growing world demand for animal proteins was also cause for optimism.

"Farmers in the survey also reported being buoyed by the general expectations for increased demand for red meat - this factor was cited as a reason for optimism by 50 per cent of sheep and beef farmers who had a positive outlook," he said.

New Zealand's dairy producers, on the other hand, reported the lowest levels of confidence of all the agricultural sectors in this survey.

More than half of dairy farmers (52 per cent) expected the performance of their own farm enterprise to worsen in the next 12 months, up on the 47 per cent with that view in the previous quarter.

Only 11 per cent believed their business performance would improve, compared with 20 per cent last survey.

A total of 35 per cent expected a similar performance to the previous year, compared with 32 per cent previously.

"The reasons given for the negative outlook among dairy farmers were overwhelmingly linked to the milk price and dairy outlook, clearly illustrating the impact the 49 per cent slide in the Global DairyTrade auction prices which has occurred since November 2013 has had on New Zealand's agricultural sector," Russell said.

Farmers' investment intentions overall remained largely unchanged, with most intending their investment in stock, plant and land to remain the same over the next 12 months.

However, Russell said, the differing optimism levels among the sectors were also represented in investment intentions, with sheep and beef farmers having higher investment expectations (41 per cent expecting to invest more), while the percentage of dairy farmers expecting to increase investment was much lower at only 18 per cent.

This "reversal in fortune" between dairy and sheep/beef farmers was reflected in farmers' assessment of their own viability levels.

Russell said this figure was now similar between the two sectors and consistent with levels seen in 2012.