Slipping sentiment in the sector coincided with a pick-up in dairy farmer confidence as dairy commodity prices improved, Rabobank’s NZ country banking general manager Hayley Moynihan said.
Given that offsetting trend, overall farmer confidence in their trading outlook was lower but still strong, she said.
The net confidence level was a positive plus 25%, down from plus 35% in the previous quarter.
Dairy farmer optimism was the highest since 2013 when average commodity prices were about the US$5000/tonne mark.
General optimism in the sector was now 67% while 70% of farmers expected their own trading position to improve and only 3% expected it to get worse.
However, when the sheep and beef sector was added in, the overall positive level dropped to 39% (from 48% previously) and nearly half the sheep and beef group expected their own trading to worsen, with the net sector sentiment turning negative from positive in the previous quarter.
They were likely to experience a tough year, Moynihan said.
“Lamb prices have reached the seasonal peak with the lucrative United Kingdom and European Union Christmas trade now finished and returns had been about 10% lower than last year.
“On the beef side, global prices are under pressure and the beef schedule is likely to weaken in 2017.”
The report said the high NZ dollar, especially against UK sterling, was making life difficult for pastoral farmers, which was unfortunate because demand was improving in other overseas markets.
The pressure on the sector was the biggest contributor to the lower expectations for the broader agricultural economy.
Horticulture growers remained very positive, though sentiment was slightly down on the previous quarter.
They had been positive for the last five surveys, boosted by good growing conditions and especially strong pricing for kiwifruit and pipfruit in world markets, she said.
Horticulturalists had the strong investment intentions, ahead of dairy farmers, with the sheep and beef farmers trailing.
Dairying might have been expected to be looking at more investment given the confidence levels and continuing price increases, Moynihan said.
However, with average debt at $2.60/kg MS across the sector, many farmers were likely to put income gains towards debt reduction.
The quarterly surveys involved about 450 farmers.
