From the Farm: Christmas? Bah humbug

By Jonathan Underhill

You have to take business confidence with a grain of salt when it comes to farmers. Inherently conservative, they’re likely to sound less upbeat on average than other sectors of the economy.

This week’s ANZ Bank Business Outlook is no exception. In 10 of the 13 indicators where agriculture is polled, it registered the lowest reading.

For example, a net 18.2 percent of agricultural businesses expect general business conditions to get worse in the year ahead – an outlier in the survey when the consensus view across all types of firms has a net 23 percent seeing better times ahead.

The rural sector is the only one to throw up a negative number for pricing intentions and had the weakest intentions for both exports and investments.

That tallies with last week’s Rabobank Rural Confidence Survey, which showed 31 percent of farmers expect the rural economy to worsen over the next 12 months and for their own business, 33 percent saw worse times ahead. A negative outcome, though ‘less worse’ than in the last survey three months ago.

They blamed the high kiwi dollar, weaker overseas markets and lower commodity prices in equal proportion.

This column tends to bang on a bit much about the high New Zealand dollar but it is clearly a key factor weighing on sentiment among farmers. The currency is a standout this year, heading for an annual gain of more than 7 percent against the greenback or almost three times the advance of the Australian dollar.

The kiwi is up 4.6 percent against its Aussie counterpart, it has soared 18 percent against Japan’s yen and has gained 4.7 percent versus the euro.

There seems to be little relief in sight. The Reserve Bank’s Dec. 6 Monetary Policy Statement revised up its forecast track for the trade weighted index through to March 2015.

Sheep and beef farmers were the gloomiest in the Rabobank survey with 55 percent expecting their farm business to get worse in the next 12 months.

They’ve had to cope with weaker prices this year. The ANZ Commodity Price Index for November had the price of lamb falling to a 31-month low.

Dairy farmers were modestly positive by comparison and were given an early Christmas present by Fonterra lifting its 2012/13 forecast payout by 25 cents per kilogram of milk solids. Not quite three cheers. ANZ chief economist Cameron Bagrie notes the payout “is not much above basic breakeven” for many farmers.

Federated Farmers dairy spokesman Willy Leferink said the payout boost “is great for morale before Christmas but it will not set the tills alight.”

Figures yesterday showed agriculture had the biggest downward influence on gross domestic product in the third quarter, falling 2.8 percent and contributing to a GDP rate of 0.2 percent, half the expected pace.

The decline in agricultural activity was the biggest since a 9.5 percent drop in the second quarter of 2010. It has to be noted that agricultural activity was up 23 percent in the September year, reflecting higher than usual growth in the first half of the year.

There’s a glass half full way of thinking about things though.

The Ministry for Primary Industries today released production and trade figures for the third quarter showing primary sector export revenue rose 4.7 percent from a year earlier to $7.12 billion. For the year through September they rose 0.5 percent to $32.43 billion.

“This was despite difficult trading conditions and a stronger New Zealand dollar,” says Chris Jones, MPI’s Economic Information and Analysis Manager.

The increase was driven by higher meat and dairy volumes after a bumper production season.

Perhaps the biggest short-term variable may be resolved within days. If Republicans and Democrats can agree on a plan to avert the so-called fiscal cliff of US$600 billion of tax hikes and spending decreases scheduled to start on Jan. 1. Failure to act could push the world’s biggest economy into recession by the end of 2013, according to the Congressional Budget Office.

Maybe the real Christmas present for farmers this year is going to come from Washington.



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