A positive outlook for the dairy and horticulture sectors has kept overall confidence high in the agricultural economy, Rabobank New Zealand general manager for country banking Hayley Moynihan says.
Confidence levels among New Zealand farmers remained high but had tempered slightly, the latest quarterly Rabobank rural confidence survey found.
After surging considerably in the previous quarter, supported by improved dairy farmer outlook, the latest survey recorded a small decline in sentiment.
The number of farmers expecting the rural economy to improve in the next 12 months had fallen to 39%, down from 48% in the previous quarter, while the number expecting it to worsen rose to 14%, up from 13%.
Prospects for the dairy and horticultural sectors were good for 2017 and, while overall confidence had come back slightly from last quarter, it was still significantly higher than the levels recorded throughout 2015 and early 2016, Ms Moynihan said.
The primary driver of the fall in overall confidence was reduced optimism in the prospects for the sheep and beef sector.
Sheep and beef farmers were likely to experience a tough season. Lamb prices had reached their seasonal peak. The lucrative UK and EU Christmas trade had finished and returns had been around 10% lower than last year.
Global beef prices were under pressure and the beef schedule was likely to weaken in 2017. The high New Zealand dollar, particularly in relation to the British pound, was also ``making life difficult'' for sheep and beef farmers, she said.
Horticulturists had the strongest investment intentions. A net 33% were looking to increase investment, followed by dairy farmers at 22% and sheep and beef farmers at 7%.
In BNZ's latest Rural Wrap, the bank's economists expected overall lamb prices to be subdued, 2016-17 season average prices to dip below $5 a kg, about 3% below the previous season average.
Difficult and uncertain trading conditions in the UK market stood out on the negative side and would ``probably hold most sway''.
There was also probably some drag on lamb demand from oil-producing countries, given still relatively low oil prices.
On the price-positive side, there was tighter supply, both in New Zealand and Australia, and improving Chinese demand signals.
Much less sheepmeat was expected from Australia as the flock was rebuilt, following considerable rain that followed years of drought.
ASB's latest Farmshed Economics report said China was the ``shining light'' for both lamb and mutton markets.
Demand was underpinned by Chinese New Year celebrations but some reports were indicating that demand might extend beyond that period. For example, prices of lamb flaps had lifted about 10% over the past month.
