Continuing uncertainty in global markets and softer commodity prices has led to a further fall in farmer confidence.
The latest quarterly Rabobank rural confidence survey, completed in late June, showed a more modest deterioration in confidence among New Zealand farmers, on the back of a significant fall in the previous quarter.
This quarter, more than a third of farmers (36%) surveyed expected the agricultural economy to worsen in the coming 12 months, compared with 27% in the previous quarter.
While half expected stable conditions, just 11% expected conditions to improve, down from 17% previously.
Farmers remained realistic and were not expecting the run of good seasonal conditions and commodity prices to last, Rabobank New Zealand chief executive Ben Russell said.
They had seen commodity prices come back off their more recent highs, while the New Zealand dollar had remained very strong, he said.
Sheep and beef producers were the least optimistic, just 9% expecting conditions to improve and 36% expecting a deterioration.
That fall in confidence reflected the decline in lamb prices from historically high levels, and the state of the economy in key export markets.
Tough trading conditions in the United Kingdom and European Union markets, combined with the high dollar, had seen lamb prices drop by about 20% to 25% since the corresponding time last year, he said.
Rabobank's latest agribusiness review showed total sheepmeat and lamb export volumes were 8% stronger year-on-year in June, about 29,600 tonnes.
Exports to the UK were 41% lower in June at 3700 tonnes, while exports to the EU (excluding the UK) were 17% lower at about 6000 tonnes.
Most international dairy commodity prices should show signs of stabilising in United States dollar terms through August, the report said.
In New Zealand, June monthly export data confirmed the shipment of heavy volumes from last season in the winter months: export volumes were 27% higher than the previous year and even 8% higher than May 2012.
That meant the export volume was more aligned with levels seen during the peak months of November and December.
Exports to China also jumped compared with June 2011: shipments in the first half of 2012 were up 10%, China accounting for 22% of total exports in the same period.
The worst US drought for more than 50 years drove global grain prices to record highs during July, and many regions in the US reported declines in milk production during June. The drought was expected to further reduce milk production growth for the rest of the year.
The ASB New Zealand commodity price index remained largely flat in the week to August 3.
While prices started to lift in US dollar terms, that was offset by the continued strength of the New Zealand dollar.
Recent stabilisation in US dollar dairy and meat prices had been encouraging. In the coming year, the effects of the US drought and higher feed costs were likely to be supportive to meat and dairy prices.
