Farmers’ economic confidence improved in the first months of 2010, boosted by sheep and beef prices although optimism in some regions was restrained by drought conditions, a new Rabobank survey shows. It found 34 percent of farmers expected the rural economy to improve in the next year, up from 32 percent previously, while the proportion of farmers expecting conditions to worsen fell to 11 percent from 26 percent reports The ODT.

The Rabobank rural confidence survey was completed this month but before yesterday’s announcement by Fonterra that it had increased its milk price forecast for this season by 40c to $6.10 a kg of milksolids. Rabobank general manager rural NZ Ben Russell said the survey showed much of the improvement in rural confidence had been driven by sheep and beef farmers, who had a more optimistic outlook about their sectors. Factors working in the favour of sheep and beef producers included a small fall in the NZ dollar during the survey period, and good news in terms of commodity prices in the sectors.

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• The global economic recovery is continuing, with better US jobs data which is positive for consumption ahead. In NZ the recovery remains fragile, with signs of slowing momentum in the housing sector and a weak labour market, lowering expectations for rises in the official cash rate reports Scoop. The outlook for the Australian economy continues to improve, with upward revisions to GDP and inflation forecasts. As a result, the official cash rate rose again by 25 basis points in April.

• The NZ and Australian dollars continue to reflect the growth differences between the two countries. Rabobank still expect both currencies to weaken against the US dollar in the second half of the year, although they will remain at elevated levels.

• Global dairy prices surprised on the upside in recent weeks, due to ongoing improvements in the global economy, a weak end to the NZ  production season and a slow start to the EU season. As a result, optimism is building for the 2010/11 season, particularly in Australia with soft feed grain prices and improved irrigation water availability.

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Commentators are continuing to express confidence in the future of the meat industry, more so than farmers. Rabobank’s Australian-based animal protein senior analyst, Wendy Voss, told farmers in Central Otago last week that demand for all meat was expected to grow 20% in the next decade, at a time supplies were forecast to continue falling reports The ODT.

That extra demand would come from developing nations and would outstrip supply, Ms Voss said. “The outlook for Australia and NZ sheep meat and beef is very positive,” she told 300 farmers at the SI High Country committee’s biennial field day in the Nevis Valley. Ms Voss said fluctuating prices had caused a global decline in the supply of sheep meat and beef.

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A return to the days of many farms being converted to dairying is not expected, a leading rural financier says in The ODT. Rabobank senior protein analyst Hayley Moynihan said a more conservative approach by farmers, tighter credit and lower farm values would not see a return “to the heady days of new dairy conversions”.

However, milk prices would see most farmers return to cash profitability this year and, if expenditure was controlled, potentialprofits would be comparable to 2007-08, she said. Mrs Moynihan expected milk production to grow 2% this year due to herd expansion, feed supplements and moderate climatic conditions over most of the country.

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Prepared by Rabobank’s Food & Agribusiness Research and Advisory division, the report provides monthly commentary on NZ and Australian economic and agricultural conditions. Highlighted in this report: • The start of 2010 has seen the south of NZ wet and cool, while the north of the country has been dry and warm.  Pacific Ocean temperatures remain warm – above El Niño thresholds in most areas – but the trend is now to cooling, with an expectation that the Southern Oscillation Index will gradually return to normal conditions over the next few months

• The recovery in the global economy continues, although there are signs of volatility. The economic recovery in New Zealand remains fragile, with several risks to momentum, including non-residential construction, the housing market and unemployment.  There has been an easing of both the New Zealand and Australian dollars over recent weeks, although both are expected to firm over coming months.

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In its annual NZ Agriculture in Focus report, the agribusiness bank says global demand for some agricultural commodities  such as dairy and sheepmeat  is increasing. General manager Ben Russell said that although global and domestic economic conditions seem to have turned a corner and were expected to gather momentum in 2010, the recovery remained fragile reports Stuff.

“While conditions have definitely been improving there remain a number of downside risks,” he said.”The NZ dollar remains high, inflicting serious head-winds on exporters, there are continuing tighter credit conditions and economic recovery remains subdued in key export markets, such as Japan and the United States.”

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Lower interest rates, rising stock prices and recent rain have boosted confidence in the district’s pastoral farming market, which had ground to a near standstill over the past 18 months.Farmers wanting to retire or exit the industry had been withholding properties last year, waiting for the market to recover, said Rabobank Gisborne rural finance specialist Adrian Brown. But over the past six months or so, the market had consolidated at a good level that could be sustained by investors and lenders. Vendors were now realising prices would not revert back to the peaks of two years ago.

At that stage, farms in this district were fetching record prices of up to $750 a stock unit. These had now dropped to a more sustainable level of around $500-$550 in the Gisborne district and around $400 in Wairoa, said Mr Brown. But at that level people had the ability to get in and make a bit of profit. As a result of that, customers were making offers reports The Gisborne Herald.

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Fertiliser prices could rise sharply in the coming year, driven up by a combination of increased global demand and depleted stocks. An analyst with specialist rural bank Rabobank, Adam Tomlinson, said prices should not reach the heights of mid-2008. But many fertiliser manufacturers and distributors had run down inventories and any sudden increase in demand could push up prices in the short term reports The ODT. Mr Tomlinson said the recovery in dairy prices could provide that impetus.

In 2009-10, fertiliser use in New Zealand fell 25% compared to the previous year due to falling dairy prices and the financial crisis. This meant manufacturers and distributors were caught with excess stock and production capacity which exceeded demand. “In response to this, manufacturers of farm inputs have wound back production and run down inventories, which could potentially have a marked impact on prices if we see a large rise in seasonal farm input demand.”

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Small mountains of stockpiled butter and milk powder in the United States and Europe could dampen but were not expected to curb growing global demand, according to a report by Rabobank. The bank’s senior analyst, Hayley Moynihan, said buyers would be aware that 300,000 tonnes to 400,000 tonnes of skim milk powder and butter were in storage, but the real impact on price would be decided by how those products were released on to the market reports The ODT. That latest stockpile was about 40% of that built up earlier in the decade, she said.

Mrs Moynihan remained optimistic that the dairy sector’s fundamentals remained strong, despite what she described as “the completion of a phenomenal boom-bust cycle in the global dairy market”. The US and European Governments have said they would divert some of the stockpiled product, acquired to underpin domestic prices, to domestic food aid programmes, which she said was better than releasing it on to the international market. The European Union has said it could start selling its stockpile in the middle of next year, but Mrs Moynihan said it was also keen to let milk prices strengthen and recover before it acted.

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Christmas is coming for food exporters, but it will be another year before they get to open the presents, according to Rabobank senior analyst Wendy Voss. Ms Voss was particularly optimistic about sheep meat, but said the long touted pick-up in demand for all red meat was real, even though consumer sentiment in NZ’s key markets was expected to remain subdued until the middle of next year reports The ODT.

“There’s always a chance things may improve before then, but realistically demand won’t pick up until economic growth improves and unemployment rates begin to ease in key markets such as the United States and Japan.” Before the financial crisis, meat prices were rising due to tightening supply resulting from liquidated flocks and herds and a lack of profitability for several years prior.

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