Farmers have done well but outlook uncertain.
The results are out for Federated Farmers’ July 2021 New Season Farm Confidence Survey. Most farmers were doing well due to good market prices but they’re uncertain about the economic outlook and have major concerns about labour shortages and the impact of government policy and regulation.
There were improvements for almost all the measures since January 2021’s survey, which had in turn improved from the July 2020 survey. Perceptions of current economic conditions and current farm profitability and expectations for future economic conditions (albeit still negative) and farm profitability were all better. Production expectations were up a little, spending expectations were up strongly, and more farmers expected to pay down debt.
These results indicate farmers in a pretty good space, reflecting high commodity prices, which have flowed through to higher farm incomes and profitability, and the excellent but too often unsung work of farmers, processors, and marketers in continuing to produce and sell produce into at times challenging international markets. The importance of agriculture to the economy is even greater in a COVID-19 world of border restrictions so these results should be celebrated.
The one indicator that worsened was experiences with recruiting staff, where farmers had found it increasingly hard – with the net score the highest since the survey began in 2009. This gels with what we’re hearing about labour shortages and requires urgent action.
The top farmer concerns are not surprising – climate change policy is number one, followed by regulation and compliance costs, and freshwater policy. These are perennials. Climate change lifted relative to the other two, not surprisingly given the noise around the Climate Change Commission’s advice to Government and the Ute Tax, which people see as a climate change policy. The unrelenting tsunami of policy and regulatory changes will, unless moderated, reduce agricultural production and increase costs, and this is a concern to farmers.
The full survey report can be found here and key results follow (with changes shown from the January 2021 survey):
- General economic conditions (current): A net 17.9% per cent of respondents consider current economic conditions to be good, a 12.4 point improvement.
- General economic conditions (expectations): A net 39.0% of respondents expect general economic conditions to worsen over the next 12 months, a 5-point improvement.
- Farm profitability (current): A net 55.6% of respondents reported making a profit currently, a 6.2-point increase.
- Farm profitability (expectations): A net 4.4% of respondents expect their profitability to improve over the next 12 months, a 23-point increase.
- Farm production (expectations): A net 15.3% of respondents expect their production to increase over the next 12 months, a 1.7-point increase.
- Farm spending (expectations): A net 32.6% of respondents expect their spending to increase over the next 12 months, a 21-point increase.
- Farm debt (expectations): A net 29.3% of respondents expect their debt to reduce over the next 12 months, a 1.0-point increase.
- Ability to recruit (experienced): A net 48.8% of respondents reported it has been harder to recruit skilled and motivated staff, a 13-point increase.
- Greatest concerns (current): The three greatest concerns for farmers are climate change policy and ETS (chosen by 18.5% of respondents), followed by regulation and compliance costs (17.1%), and freshwater policy (11.0%).
- Highest government priorities (current): The three highest priorities farmers would like the Government to address were regulation and compliance costs (14.0%), economy and business environment (13.1%), and supporting agricultural exporters (10.4%).
1,422 farmers responded to the survey which was held from 5-13 July. The next survey will be held in January 2022.
Food prices up
Another big increase in vegetable prices pushed food prices up 1.3% in July (and 0.5% after seasonal adjustment) according to Statistics NZ’s monthly Food Price Index.
Comparing July 2021 with June 2021:
- Fruit and vegetable prices rose 5.1% (up 0.8% after seasonal adjustment), with vegetables up 7.5% and fruit up 0.9%.
- Meat, poultry, and fish prices rose 0.5%, with beef & veal up 1.0% and mutton, lamb & hogget up 0.7%; and
- Grocery food prices rose 1.0%, with bread & cereals down 0.6% and milk, cheese & eggs up 2.2%.
The annual rate of food price inflation was steady at 2.8% (same rate as last month). Comparing July 2021 with July 2020:
- Fruit and vegetable prices rose 4.9%, with vegetables up 6.4% and fruit up 2.2%.
- Meat, poultry, and fish prices rose 0.4%, with beef & veal down 3.7% and mutton, lamb & hogget up 4.5%; and
- Grocery food prices rose 2.7%, with bread & cereals up 0.5% and milk, cheese & eggs up 6.2%.
New Zealand’s emissions were down 4.5% in the year to March 2021, according to Statistics NZ’s quarterly Greenhouse Gas (GHG) statistics.
Stats NZ noted that Covid-19 caused upheaval to the economy and society and this flowed through to GHG emissions, especially during the June 2020 quarter.
Industries that saw the largest falls in emissions in the March 2021 year included transport, postal, and warehousing, down 49%; manufacturing, down 7.2%; and agriculture, forestry, and fishing, down 1.2%.
A notable exception was electricity, gas, water, and waste services where GHG emissions were up 13% due to the greater reliance on fossil fuel use for electricity generation.
Housing market still hot.
House prices have risen yet again, according to the Real Estate Institute of NZ’s monthly Residential Market Statistics.
The median sales price for houses sold in July 2021 was $826,000, up 1.3% from June’s median of $815,000 and up 25.2% from July 2020’s median of $659,500. $826,000 is a new record high.
Auckland’s median sales price was up 28.0% for the year to reach $1,175,000. However, the biggest annual increases in median sales price were in the regions, such as Marlborough (up 41.5%), Hawkes Bay (up 32.7%), Manawatu-Wanganui (up 31.8%), and Gisborne (up 30.0%). The smallest annual increase was in Nelson (up ‘only’ 17.2%).
Volumes sold continue to slip, with July 2021’s 7,187 houses sold down 11.7% from July 2020. July 2020 was the first full month of real estate activity post-lockdown and saw an unusually high level of sales. REINZ said July 2021 is more aligned to usual winter sales numbers, albeit in a high demand, supply constrained market.
Median sales to sell a house slipped from 34 in July 2020 to 31 in July 2021 – another indicator of a hot market.
Retail spending up.
July saw a seasonally-adjusted 0.6% month-on-month increase in retail spending, according to Statistics NZ’s monthly Electronic Card Transactions.
Apparel saw the biggest seasonally-adjusted percentage increase, up 3.6%, followed by fuel (up 0.9%), and consumables (up 0.7%). Card spending on non-retail also grew strongly (up 2.4%), although spending on services dropped 0.5%.
Actual retail spending in July 2021 was $6.25 billion. On an annual basis, comparing July 2021 with July 2020, retail spending was up 4.7%. Hospitality was up 10.6% and fuel up 9.8%. Both of these sectors had been particularly hard hit by last year’s Covid lockdown.
Traffic volumes slip.
Both light and heavy traffic volumes slipped in July according to ANZ’s monthly Truckometer.
The Light Traffic Index eased 0.8% in July compared to June, while the Heavy Traffic Index fell 1.1%. Volumes for the three months to July were still up compared to the same three month period last year (up 15.7% and 8.5% respectively) but the annual increases are dropping as the effects of last year’s Covid lockdown drops out of the data.
ANZ observed that traffic volumes remain volatile with transport disruptions and the ‘tourism stop’ continuing to affect the data, particularly for heavy traffic.
Job ads up again.
Job advertising levels lifted again in July, according to the latest BNZ-Seek Employment Report. Job adverts were already riding very high in June – well above the pre-COVID peak in mid-2019 – and they increased a further 1.7% in July.
Advertisements for the farming, animals, and conservation industry were up 3% for the month.
This is yet another confirmation (if one were needed) of how tight the labour market is.
Next week – the Reserve Bank speaks.
The big economic news next week will be the Reserve Bank’s review monetary policy settings (on Wednesday). Although there are some dissenting views most commentators expect it to increase the OCR by 25 basis points to 0.5% and that it will signal a track of further increases so it reaches 1.75% by this time next year.
At 3.3% in the June quarter, consumer price inflation has breached the Reserve Bank’s 1-3% target rate. It’s expected to go even higher in the current September quarter, perhaps exceeding 4%. House prices continue to increase strongly, fuelled in no small part by extraordinarily low mortgage interest rates influenced by the OCR. And the final piece of the puzzle is the labour market with yesterday’s quarterly data showing a big drop in unemployment to 4% and signs of increasing wage inflation. All these factors would support a return to more normal monetary policy.
Probably the only legitimate reason it could use to keep the OCR on hold would be uncertainty and risk about the course of Covid-19, especially if the Delta variant got into the community. That would be a game changer but it hasn’t happened yet (touch wood).
On the face of it a higher OCR would be expected flow into higher mortgage and overdraft interest rates and provide more support for the exchange rate. Neither would be happy news for farmers. However, a 25 point increase on Wednesday probably wouldn’t do much to the exchange rate or borrowing rates as the markets have already factored in such an increase. But if the Reserve Bank leaps ahead with a bigger increase or it sets out a more aggressive approach for the next few reviews that could have a more material effect.
NIWA Soil Moisture Data.
NIWA’s latest soil moisture maps (as at 9am Thursday 12 August) continue to show most of the country’s soils being about average for this time of year. The main exception is coastal Hawkes Bay, where soils remain significantly drier than usual. There are also spots in Marlborough, Canterbury, and Otago significantly wetter than usual.
Over the course of the week the NZ Dollar was up slightly, rising 0.2% against the Trade Weighted Index. It was mixed against our key trading partners – down a little against the US Dollar, UK Pound, virtually unchanged against the Chinese Renminbi, and up against the Australian Dollar, the Euro, and the Japanese Yen.
Source: Reserve Bank of NZ
Wholesale Interest Rates
Over the course of the week the yield for the 90 Day Bank Bill was up a further three points to 0.68% while the 10 year Government Bond yield was up 13 points to 1.72%.
The Reserve Bank will next review monetary policy settings (including the OCR) on Wednesday 18 August.
|This Week (12/8/21)||Last Week (5/8/21)||Last Month (12/7/21)||Last Year (12/8/20)|
|90 Day Bank Bill||0.68%||0.65%||0.32%||0.30%|
|10 Year Government Bond||1.72%||1.59%||1.54%||0.78%|
Source: Reserve Bank of NZ