It's mostly upbeat down on the farm.

How are things down on the farm as we head into the fifth season of the new millennium and a spring election?

The short answer is that dairy, sheep and beef farmers are generally on a pigs back, but deer farmers are short of dough, and some fruit growers are ready to sell up, move to town and become land agents.

MAFs 2005 Farm Monitoring reports into the status of our primary industry paints a mixed picture of the current trends and the outlook for farming.

[Source: http://www.maf.govt.nz/mafnet/rural-nz/statistics-and-forecasts/farm-monitoring/index.htm ]

Sheep and beef farmers, it says, are feeling positive with gross revenue up and the expectation that lamb prices will stay up and the beef schedule will remain stable. Farm values are climbing and some farmers are leveraging off the value of their property to buy a stake-hold in town.

In the dairy sector farm the increased payout has lifted revenue by 9% for the season just ended despite poor weather that reduced production in all regions between 4 10%. And while gross dairy farm revenue is expected to drop 1% in 2005/06, the price of dairy farms continues to increase and farmer morale and confidence are bullish heading into the new season.

On deer farms, incomes have generally increased in the North Island reflecting better venison returns, but revenue for many South Island units has fallen. Velvet returns have reached an all-time low. Continuing poor prices mean that deer farmers are on the horns of a dilemma, with some opting to leave the industry while others are taking advantage of low stock prices to expand their operations.

The arable sector ploughed into major weather swings last spring, but overall the season suited most crops. Production has increased considerably in the past decade but profit levels have remained static. MAF says that arable farmers are budgeting for a similar result next year, with higher productivity offsetting slightly lower prices and small cost increases.

The horticulture sector had a rough season with incomes generally falling. Increased competition on European markets from Southern hemisphere competitors, along with increasing costs, has led to a sharp fall in apple prices that has shaken growers to the core. Kiwifruit prices are also softening.

The 2005 grape harvest produced a vintage of 142,000 tonnes of grapes the second largest on record. Sauvignon blanc is the leading variety, representing 45% of the vintage. However, average prices for the major varieties have fallen and many growers are anticipating lower profits.

Next season

While world prices for the agricultural commodities that New Zealand exports have risen steadily in the past three years, it looks as though the cycle has passed its peak. In the past two months the world prices index, weighted according to the contribution of the commodity to our exports, has fallen slightly but its effect on farm gate prices has been offset by a corresponding fall in the value of the NZ dollar. It is likely that any future fall in overall returns will be offset by a fall in the exchange rate.

[Source: ANZ Commodity Price Index - July data from ANZ website]

Predictions for the coming season are that farm gate returns for wool and beef should hold their own, while lamb and dairy prices are likely to be slightly down. Venison, velvet and apple returns could lift 10-20% from their current low levels, but kiwifruit returns are likely to decrease. Interest rates are likely to remain unchanged well into 2006.

These predictions depend on assumptions about international markets and exchange rates. A risk to NZ farmers is the NZ dollar remaining high while international commodity prices fall, a scenario that could well happen if there is sustained weakness in the US dollar. Other risks include a sustained rise in the price of oil, and a major slowdown in the Chinese economy.

[Source: National Bank Rural Report June http://www.nationalbank.co.nz/rural/information/ruralreport/200506/default.htm ]