Plunging dairy prices have taken their toll on farmers with rural confidence levels at a two-year low.
The latest quarterly Rabobank rural confidence survey has found the country's rural sentiment at its lowest level since September 2012, with 37% having a negative outlook of the rural economy in the next 12 months.
That compared with 24% with that view in the previous survey. Those with a positive view decreased to 20%, down from 25%.
Last month, Fonterra held its milk-price forecast for the 2014-15 season at $6 but that could well slide further today, when the dairy giant announces its annual results.
While dairy farmer confidence had declined considerably, sheep and beef farmers' sentiment, though tempered, remained at robust levels, the survey showed.
The softening in overall confidence was clearly a reflection of the impact of the bearish global dairy outlook and lower milk prices on dairy farmer sentiment, Rabobank New Zealand chief executive Ben Russell said.
Falling dairy commodity prices were the overwhelming factor at play and, with global dairy supplies continuing to increase from all key exporting regions, a significant price recovery was not imminent.
''That said though, farm commodity prices move in cycles and, clearly, dairy commodity prices are entering a lower part of the cycle right now.
''While this is always a difficult time, the important thing to remember is the medium to long-term picture for the dairy industry is strong,'' he said.
Dairy farmers were also cautious as the industry approaches a critical time in the year. The peak production and selling period for New Zealand milk was just weeks away, he said.
Almost half of dairy farmers surveyed expected the performance of their own farm business to worsen in the coming 12 months, up from 30% with that expectation in the previous quarter, while 20% expected an improvement in performance, which was down from 27%.
While there was a tempering in sentiment among sheep and beef farmers after reaching three-year record highs in the previous survey, confidence in the sector remained at overall strong levels.
Lamb prices were up on the previous season and beef prices were hitting record highs due to tight global supply.
About 43% of sheep and beef farmers indicated they intended to increase investment in their farm businesses over the next 12 months, up from 37% previously.
But dairy investment appetite had waned, with 21% intending to invest less in their businesses, up from 7% with that view in the previous survey, and 20% expecting to increase investment, down from 27%.
That was the lowest level of dairy farmer investment intentions in more than five years.
That change in sector investment dynamics might be an early indication the decline in the national sheep flock and the rate of dairy farm conversions were slowing, Mr Russell said.
