Farmer sentiment has taken a big upwards bounce in the latest Rabobank rural confidence survey.
The overall net confidence reading in the quarterly survey rebounded to 3%, up from -42% last quarter, and was the first net positive reading since the March 2015 survey.
The survey, completed in early June, found the number of farmers expecting the rural economy to improve in the next 12 months had climbed to 25% (up from 11%) while the number expecting it to worsen fell to 22% (down from 53%).
The results highlighted growing optimism among farmers with an expectation the dairy market was "passing through the trough'', Rabobank New Zealand general manager for country banking Hayley Moynihan said.
Since the last survey, dairy prices had increased in five out of the last seven GlobalDairyTrade auctions and Fonterra posted a $4.25 opening forecast farm-gate milk price for the 2016-17 season.
"While neither the auction prices nor the forecast price will have convinced farmers that the dairy sector is out of the woods, prices are, however, showing signs that global supply and demand for dairy products is rebalancing and will eventually reach a more sustainable level,'' she said.
Dairy farmers were "vastly'' more positive about their own businesses than last quarter. Sheep and beef farmers were also markedly more positive, likely due to ongoing strong beef returns and an expectation that lamb prices would rise as a result of the expected contraction in lamb numbers for the remainder of the season.
Rabobank's latest beef quarterly said New Zealand cattle supplies were now tightening as the season moved into winter and farmgate prices were expected to strengthen.
However, the extent of that increase would depend how how the United States market reacted. The US was "awash'' with all types of meat.
Horticulturists continued to be by far the most optimistic of all farmers surveyed, with more than half of those surveyed expecting expecting their business performance to improve in the coming year.
The survey also found the strongest level of investment intention that had been seen across the agricultural sector for more than a year.
Speaking at Federated Farmers national conference yesterday, dairy chairman Andrew Hoggard raised whether dairy farmers might need to re-evaluate what a "smart'' level of debt was.
New Zealand had a very high debt level on its dairy farms, which was due to several factors.
In many cases, farmers in other countries had not been able to expand because of regulation, or had volatility from other factors, such as weather in Australia, which meant they had a mindset around managing that and carried less debt.
Last year, dairy farm debt stood at close to $38 billion. New Zealand farmers had been able to handle higher debt levels because returns had been good and weather generally was favourable.
He questioned whether the current downturn was "just a blip'' or whether farmers were entering a new period.
"Things might look slightly different than the last decade and our risk profile might be slightly different than the last decade,'' he said.