by Nick Clark, National Manager General Policy
Farmer confidence plumbs new depths
Federated Farmers’ January 2023 Farm Confidence Survey has shown a further downturn in farmer sentiment. The result was a new record low since the survey began in July 2009, even worse than the previous July 2022 survey, which had held the record low.
The survey, completed by 1,103 farmers over the period 16-23 January, showed a net 65% of respondents consider current economic conditions to be bad, 17 points worse than the July 2022 survey. Meat and wool were the most pessimistic, followed closely by arable. Looking ahead,a net 82% of respondents expect general economic conditions to deteriorate over the next 12 months, 1 point worse. Arable were the most pessimistic.
Turning to own-farm profitability, a net 28% of respondents reported making a profit currently, 27 points worse. Dairy took a hit, but it remains the sector with the most farmers making a profit. Looking ahead, a net 67% of respondents expect their profitability to decline over the next 12 months, 14 points worse. Falling commodity prices and increasing input costs are squeezing margins and are forecast to squeeze them further.
A net 5.4% of respondents expect their production to decline over the next 12 months, 5 points worse than July 2022 and it is the second survey in a row with more farmers expecting to reduce production than increase it. Dairy farmers are the most pessimistic about production.
A net 24% of respondents expect their spending to increase over the next 12 months, down 31 points. Concerns about profitability appear to be causing more farmers to cut their spending, outweighing the impact of higher input prices. Dairy farmers are more likely to expect to increase spending, with meat and wool farmers less likely.
Usually, more farmers expect to reduce debt than to increase it, but not this time. A net 4.3% of respondents expect their debt to increase over the next 12 months, up 19 points from July 2022 when a net 15% expected to reduce debt. Concerns about profitability and higher interest rates appear to be restricting farmers’ ability to pay down debt.
The labour market continues to be tight so no surprise that a net 46% of respondents reported it had been harder to recruit skilled and motivated staff over the past six months, up 1 point from July 2022.
The four greatest concerns for farmers were Climate Change Policy & ETS; Debt, Interest, Banks; Regulation & Compliance Costs; and Input Costs. Meanwhile, the four highest priorities farmers want the Government to address were Fiscal Policy; Economy & Business Environment; Regulation & Compliance Costs; and Supporting Agriculture & Exporters.
The next survey, which is six-monthly, will be held in July 2023.
Commodity prices drop again
The ANZ World Commodity Price Index has posted its tenth consecutive monthly loss, slipping a further 1.0% in January.
Dairy prices were down 2.5% month-on-month. The meat and fibre index gained 1.4% for the month, thanks to stronger beef prices, but lamb and wool were both weaker. Horticulture prices were down 0.9% for the month, forestry prices were up 1.8%, and aluminium prices were up 4.1%.
The World Price Index is now down 13% compared to January 2022. Dairy prices are down 15.5% year-on-year and meat and wool prices down 22.5%. Little wonder farmers are feeling the squeeze.
The Kiwi Dollar was a little stronger in January which resulted in the NZ Dollar Index slipping 1.2% for the month to be down 9.9% for the year.
Global shipping prices were down again in January to their lowest level since June 2020.
Dairy prices up
The Global Dairy Trade posted a welcome increase at this week’s auction, its first increase in two months.
The GDT Price Index was up 3.2% compared to the last event on 17 January. Most of the commodities on offer posted price increases. Whole milk powder, by far the biggest on offer by volume, was up 3.8%. Skim milk powder, the next biggest, was unchanged, and there were increases for anhydrous milk fat (up 4.8%), butter (up 6.6%), cheddar (up 2.3%), and butter milk powder (up 2.0%).
The average selling price was $US3,456 and 32,582 tonnes were sold.
This was the first increase in the GDT in two months but despite the increase the Price Index is still 26.9% lower than at the same time last year.
ANZ this week revised down its forecast milk price for the 2022/23 season by 50 cents to $8.50 per kg milk solids and also revised down its forecast for 2023/24 by 25 cents to $8.75. BNZ had earlier revised down its forecasts to $8.60 and $8.30 respectively. Rabobank’s 2022/23 forecast remains at $9.00 but has said it is under pressure.
Job ads up
Job advertisements rebounded a seasonally adjusted 2% in January, according to the latest BNZ-SEEK Employment Report.
This bounce followed a downward trajectory over the last four months of 2022, when job ads logged a cumulative 20% drop. January 2023’s ads were also down 13% compared to January 2022.
The animals, farming, and conservation industry had a 12% increase month-on-month.
A slightly happier new year for consumers
Consumer sentiment has jumped, according to the monthly ANZ-Roy Morgan Consumer Confidence Index.
January’s score of 83.4 was up 9.6 points on December’s dismal record low of 73.8. The lift was driven mainly by the forward-looking questions, although the proportion of people who believe it is a good time to buy a major household item, a key retail indicator, lifted 5 points to 28%.
Inflation expectations were little changed at 5.3% (up 0.1 points) while house price expectations were also a little higher although still negative (from -0.8% to -0.3%).
NIWA Soil Moisture Data
NIWA’s latest soil moisture maps (as at 9am Thursday 9 February) show that as Cyclone Gabrielle approaches, the North Island’s soils continue to be significantly wetter than usual for this time of year. With the exception of Golden Bay and Fiordland, South Island soils are mostly average or drier than usual.
Exchange Rates.
The NZ Dollar lost ground this week, down 1.7% against the Trade Weighted Index. It was down against all our major trading partners.
Source: Reserve Bank of NZ
Wholesale Interest Rates.
Over the course of the week, the yield for the 90 Day Bank Bill was up 6 points to 4.97% but the 10-year Government Bond yield was down 1 point to 4.12%.
The Reserve Bank next reviews monetary policy settings (including the OCR) on 22 February 2023.
| This Week (9/2/23) | Last Week (2/2/23) | Last Month (9/1/23) | Last Year (9/2/22) | |
| OCR | 4.25% | 4.25% | 4.25% | 0.75% |
| 90 Day Bank Bill | 4.97% | 4.91% | 4.77% | 1.18% |
| 10 Year Government Bond | 4.12% | 4.13% | 4.22% | 2.74% |
Source: Reserve Bank of NZ
