Economic week - February 16

 by Nick Clark

Farmer Confidence Takes a Hit

Federated Farmers’ Mid-Season January 2018 Farm Confidence Survey has shown that for the first time in two years farmer optimism has decreased with negative perceptions about the economy and farm profitability, especially when looking ahead. 

Forecasts for farm production and farm spending were also down compared to the July 2017 survey. There was also a pick-up in farmers expecting to increase debt.  A particularly notable result was a jump in farmers finding it harder to recruit staff to record levels since the survey began in 2009.

Dairy suffered the biggest drops in these indicators. Dairy commodity prices were on a downward trajectory for the last half of 2017 and at the time of the survey were only just starting to go the other way.  It was the dairy sector which suffered the biggest drops in production, farm spending and similar indicators.  Meat and fibre was not so bad though, while arable was rather a mixed big.

The fall in farmer confidence was also consistent with the results of other business confidence surveys since last year’s election. 

Overall results comparing January 2018 to July 2017

Measure

Net Score – difference between those…

July 2017

January 2018

Change

General economic conditions – current

…thinking current conditions are ‘good’ versus ‘bad’

+52.7

+29.0

-23.7

General economic conditions – next 12 months

…expecting conditions to improve versus worsen

+16.2

-34.2

-50.4

Farm profitability – current

…making a profit versus those making a loss

+45.8

+44.3

-1.5

Farm profitability – next 12 months

…expecting profitability to improve versus worsen

+39.4

-3.7

-43.1

Farm production – next 12 months

…expecting production to increase versus reduce

+32.3

+9.7

-22.6

Farm spending – next 12 months

…expecting spending to increase versus reduce

+19.1

+13.7

-5.4

Farm debt – next 12 months

…farms with debt expecting debt to increase versus reduce

-40.9

-22.5

+18.4

Ability to recruit – last 6 months

…who found it harder to recruit versus easier.

+25.6

+36.1

+10.5

 

The biggest concern for farmers remains regulation and compliance costs (21.1% picking it as their greatest concern), followed by the weather (12.0%), and farmgate & commodity prices (9.3%).  It was also notable that climate change policy, the political situation, and pests & diseases also had sharp increases in concern compared to July’s survey.

The highest priority for government is biosecurity (21.3% picking it as their highest priority for the government), economy & business environment (16.1%), and regulation & compliance costs (11.7%).  It was also notable that fiscal policy had quite a big increase, probably due to a wish by farmers for the government to keep its spending under control.

Thank you to the 1,070 farmers who took part in the survey.  Your participation gives us invaluable insights and information for our advocacy efforts.

Food Price Index

Statistics NZ’s Food Price Index rose by 1.2% in January compared to December:

  • Fruit and vegetable prices were up 2.0% (with up 7.3% and vegetables down 1.8%);
  • Meat, poultry and fish prices were up 2.4% (with beef & veal up 3.1%, mutton, lamb & hogget down 2.2%); and
  • Grocery food items up 1.4% (bread & cereals up 2.1% but milk, cheese & eggs unchanged).

When seasonally adjusted food prices actually fell 0.6% for the month.

For the year ended January, food prices were up just 0.8%, a sharp slow-down on December’s annual increase of 2.3%:

  • Fruit and vegetable prices were down 1.8% (fruit up 0.4%, vegetables down 3.2%)
  • Meat, poultry and fish prices were up 0.9% (beef & veal up 0.7%, mutton, lamb & hogget up 3.5%); and
  • Grocery food items up 1.0% (bread & cereals down 0.1% and milk, cheese & eggs up 1.3%).

Government Finances Ahead of Forecasts

Better-than-expected employment growth, higher residential investment, together with private consumption at the end of 2017, contributed to the Government’s accounts continuing to track slightly better than Treasury’s forecasts.

The Government’s Financial Statements for the six months ended 31 December 2017 showed Core Crown tax revenue $597 million higher than forecast, and $1.7 billion better than the same point last year. Core Crown expenses were $166 million above the Half Yearly Economic and Fiscal Update forecast. The operating balance before gains & losses was a surplus of $1.1 billion over the six months, $779 million above forecast. Net debt was 23.2% of GDP at the end of December, slightly better than forecast of 23.4% of GDP, and on track to be below 20% of GDP by 2022.

Inflation Expectations

Economists expect inflation to stay anchored around 2%, according to the Reserve Bank’s March quarter Survey of Expectations.  For the year to December 2018, inflation is expected to be 1.9% (up from 1.6% currently) and for the following year it’s expect to edge up further to 2.1%.  Survey respondents also expect the OCR to remain on hold at 1.75% throughout 2018.

NIWA Soil Moisture Data

NIWA’s soil moisture maps as at Thursday 15 February can be seen here.  The northern half of the North Island is significantly wetter than usual, as is the top of the South Island.  Southland remains drier than usual.

Exchange Rates

NZ Dollar versus

This Week

(15/2/18)

Last Week (8/2/18)

Last Month (15/1/18)

Last Year (15/2/17)

US Dollar

0.7376

0.7212

0.7258

0.7155

Australian Dollar

0.9305

0.9222

0.9170

0.9343

Euro

0.5922

0.5878

0.5953

0.6770

UK Pound

0.5266

0.5195

0.5284

0.5747

Japanese Yen

78.74

78.85

80.45

81.89

Chinese Renmimbi

4.6791

4.5144

4.6945

4.9137

Trade Weighted Index

75.56

74.22

75.10

78.20

Source: Reserve Bank of NZ

Wholesale Interest Rates

 

This Week

(15/2/18)

Last Week (8/2/18)

Last Month (15/1/18)

Last Year (15/2/17)

OCR

1.75%

1.75%

1.75%

1.75%

90 Day Bank Bill

1.90%

1.90%

1.88%

2.04%

10 Year Government Bond

3.00%

2.98%

2.87%

3.30%

Source: Reserve Bank of NZ