Farmers are starting the new season with their confidence reaching new lows and they are unlikely to receive any help when the Reserve Bank maintains its low interest rate environment tomorrow.
The Reserve Bank is expected to keep its official cash rate at 2.5% for longer, following last week's official inflation coming in at 1% for the year ended June.
While New Zealand's OCR was at a record low in this country, the United States, Japan and parts of Europe were at zero or near zero for their official lending rates, still making New Zealand an attractive investment destination. That attractiveness keeps the currency higher in value than is comfortable with most exporters.
Figures supplied yesterday by Federated Farmers showed nearly 39% of farmer respondents expected general economic conditions to worsen in the next 12 months, 34.3% down on January.
Nearly 40% expected their own farm's profitability to worsen during the next 12 months and 30.4% expected to increase production in the period - both figures well down on the January results.
Federated Farmers president Bruce Wills said that in January, the midway point for the 2011-12 season, farmer confidence in their profitability was strong.
"This has gone fully into reverse gear with most farmers now expecting farm profitability will worsen over the coming year. While a drop in sentiment was expected, its size wasn't."
The 2011-12 season was probably one of the best in recent times for dairy, meat and wool and would be near impossible to top, he said.
"Instead of a slight easing, farmer confidence found the trap door and jumped right in."
The past few months had seen large falls in commodity prices but the exchange rate had not fallen to the same extent and had eaten into farm gate returns.
As farmers were exporters, the European sovereign debt crisis had been extremely negative on sentiment. That came on top of weak growth out of Japan and the United States, Mr Wills.
Questions remained whether China's high rates of growth could be sustained. Recent Chinese economic news had not been all positive as China was dependent on the anaemic West.
Meanwhile, Australian growth, like that of New Zealand, hinged on China.
"This is the backdrop for farmers at the start of the 2012-13 season. We aren't alone because our survey reflects a general pessimism among the wider business community.
"The sixtyfour-thousand-dollar question for all farmers is whether prices will fall further?
"We are all keeping a wary eye on the global economy and frankly, we don't like what we are seeing."
That New Zealand was "less bad" compared with Europe and North America, provided cold comfort when the New Zealand dollar was kept artificially high because of it, Mr Wills said.
