Rural confidence rises.
Strong agricultural commodity prices and a positive outlook for them have driven a third consecutive lift in New Zealand farmer confidence, according to Rabobank’s latest Rural Confidence Survey.
After 10 consecutive negative surveys, farmer confidence returned to net positive territory in the March 2021 quarter, with more farmers optimistic than pessimistic in their outlook. In the most recent June 2021 survey farmer confidence continued to rise with the overall reading up 3 points from +10% to +13%.
The survey found the proportion of farmers expecting the rural economy to improve in the next 12 months increased to 32% (up 3 points), while the number expecting the rural economy to worsen remained at 19% (unchanged). 50% were expecting similar conditions (down 3 points).
Rabobank noted the improvement in farmer sentiment was fuelled by a strong outlook for commodity prices, despite increasing concerns about aspects of government policy and the impact of labour shortages on the rural sector.
General Policy Manager for Federated Farmers, Nick Clark.
Farmers’ expectations of their own farm business performance were also up 9 points on last quarter to +16%, led by a strong jump in confidence among sheep and beef farmers.
Federated Farmers’ own six-monthly Farm Confidence Survey will be undertaken next week, with results released later in July.
Hort pushes up ag debt.
A jump in horticulture lending saw agricultural debt increase in May, according to the Reserve Bank’s Sector Lending Statistics.
Lending to the agricultural sector overall was $62.24 billion in May 2021, up $196 million for the month but down $592 million (or 0.9%) from May 2020. This was comprised of lending to the following sectors:
- Dairy cattle farms: $38.26 million, up $33 million for the month but down $1.60 billion (4.0%) for the year.
- Sheep, beef cattle, and grains farms: $15.05 billion, down $12 million for the month but up $46 million (0.3%) for the year.
- Horticulture: $5.88 billion, up $182 million for the month and up $638 million (12.2%) for the year.
- Other agriculture on farm: $2.37 billion, down $6 million for the month but up $6 million (0.3%) for the year.
In contrast to agriculture’s annual decline in lending (down 1.2% when break adjusted), the growth in housing lending continued to surge on the back of the booming housing market, increasing further to 11.4%. Business lending was down 3.9% and personal consumer lending down 3.1%.
Cost and price pressures rising.
The final results for ANZ’s June Business Outlook Survey has shown a continued intensification of cost and price pressures.
A net 86.2% of respondents expect costs to increase over the coming year, up 4.9 points from May. For agricultural respondents it was a net 100.0% - that is, all were expecting their costs to increase. Meanwhile, a net 62.8% if respondents expect to increase their prices, up another 5.4 points. For agriculture it was a net 53.8%. Inflation expectations firmed from 2.2% to 2.4% (2.3% for agricultural respondents).
In terms of business confidence, the headline measure slipped back into negative territory, with a net 0.6% of respondents expecting conditions to worsen over the next 12 months, a 2.4 point deterioration on May’s +1.8%. Agriculture continued to be the most pessimistic industry with a score of -3.8%, but this was an improvement on May’s -17.4%.
It was better news for own activity, which is a more reliable forward indicator for GDP. A net 31.6% of respondents expect their own activity to increase, up 4.5 points from May. Agriculture was the least optimistic industry but was still in positive territory at +15.4% and this was up 6.7 points.
Tax growth drives lower than expected deficit.
The Government’s Financial Statements for the 11 months to 31 May 2021 have shown higher tax revenue and a much smaller deficit than expected in May’s Budget.
Core Crown tax revenue was $89.01 billion, $4.09 billion (or 4.8%) above the Budget 2021 forecast. There were positive variances across all the main tax groups (including source deductions, corporate tax, and GST), reflecting economic conditions being better than expected. Meanwhile, Core Crown expenditure was $94.6 billion, $881 million (0.9%) lower than forecast.
As a result, the operating balance excluding gains and losses was a deficit of $3.64 billion, $5.80 billion lower than the forecast deficit of $9.45 billion.
The smaller than expected deficit flowed through to net core Crown debt, which at $101.52 billion (31.2% of GDP) was $6.04 billion lower than expected.
Jobs up in May.
The number of filled jobs increased in May, according to Statistics NZ’s monthly Employment Indicators .
In May 2021 there were 2,239,608 filled jobs across all industries. This was up 7,434 (or 0.3%) from April 2021. Jobs were also up 44,486 (or 2.0%) from May 2020. There were particularly large annual increases in jobs in health care and social assistance (up 6.7%), construction (up 5.9%), and professional, scientific, and technical services (up 4.7%). There was a big drop in administration and support services (down 5.8%).
In the agriculture, fishing, and forestry sector there were 97,289 filled jobs. This was down 3,695 (or 3.7%) from April 2021. Drops at this time of year are typical, but job numbers were also down 2,586 (or 2.6%) from May 2020. It is possible that labour shortages in the primary sector are a factor in the declines in jobs for agriculture, forestry, and fishing.
Building consents strong.
Statistics NZ’s Building Consents Issued showed there were 43,466 new homes consented in the year to May 2021, up 17.4% on the year to May 2020. The value of these consents was $16.17 billion, up 18.9%. There was particularly strong consents growth for townhouses, flats, and units – up 48.9%.
Meanwhile, the value of non-residential consents was $7.89 billion for the year to May 2021, up 21.0% on the year to May 2020. Within this the value of farm buildings consented was $281 million, up 3.3%.
NIWA Soil Moisture Data.
NIWA’s latest soil moisture maps (as at 9am Thursday 1 July) show soil moisture levels around normal across most of the country. The exceptions are coastal Canterbury/Marlborough, which are wetter than usual, and coastal Central Hawkes Bay and upper Waitaki area, which are drier than usual.
Exchange Rates
The NZ Dollar slipped this week, down 0.6% against the Trade Weighted Index. It was up against the Australian Dollar and the UK Pound but down against the other main currencies.
Source: Reserve Bank of NZ
Wholesale Interest Rates
Over the course of the week the yield for the 90 Day Bank Bill was up 3 points to 0.36%, but the 10 year Government Bond yield was down 3 points to 1.77%.
The Reserve Bank will next review monetary policy settings (including the OCR) on 14 July.
| This Week (24/6/21) | Last Week (17/6/21) | Last Month (24/5/21) | Last Year (24/6/20) | |
| OCR | 0.25% | 0.25% | 0.25% | 0.25% |
| 90 Day Bank Bill | 0.36% | 0.33% | 0.32% | 0.30% |
| 10 Year Government Bond | 1.77% | 1.80% | 1.82% | 0.97% |
Source: Reserve Bank of NZ
