1 December 2003

Results at a Glance:

 

• Rural confidence has stabilised throughout Australia.
• Investment intentions and income expectations have improved, indicating growing underlying confidence.
• Sentiment has stabilised across most states.
• Confidence is stronger among beef, dairy and cotton producers and weaker among sugar and mixed livestock/cropping farmers.
• The strong Australian dollar continues to negatively influence sentiment. Lower commodity prices are also taking their toll.
  

Agricultural confidence has stabilised as recovery from the drought is tempered by farmers' concerns about the rising Australian dollar and falling commodity prices, according to the latest quarterly Rabobank Rural Confidence Survey.

 

The survey found 33 per cent of the country's primary producers expected the agricultural economy to improve over the next 12 months, marginally down on the 36 percent with that view last quarter.

 

The number of farmers with a negative outlook, however, had also reduced slightly - 27 per cent expecting conditions to worsen over the next 12 months, down from 28 per cent last quarter.

 

Rabobank head of rural banking Australia & New Zealand Neil Dobbin said rural confidence levels were being pulled in conflicting directions by a number of different factors.

 

"On the one hand, there is a large winter grain crop being harvested with some areas experiencing excellent seasons. However, for much of New South Wales and Queensland, conditions are still poor," he said.

 

"In addition, the stronger Australian dollar, lower commodity prices and prospects for higher interest rates have had a negative effect."

 

Of those farmers expecting the agricultural economy to worsen, 53 per cent attributed it to the rising Australian dollar and 34 per cent to falling commodity prices.

 

The survey also showed that most farmers expected higher interest rates over the next 12 months. (The recent interest rate rise occurred part-way through the survey being undertaken.) Of those surveyed, 80 per cent felt that rates would increase over the next 12 months compared with just 14 per cent expecting higher rates last quarter.

"The expectation of higher interest rates is undoubtedly impacting on confidence within the sector," Mr Dobbin said. "However, it is notable that only three per cent of farmers identified it as the most pressing factor impacting on their business. Obviously other factors such as seasonal conditions and commodity prices are more 'top of mind'."

 

Mr Dobbin said the variability in seasonal conditions around the nation was clearly impacting on farm sentiment, with many areas of the nation still in need of substantial rainfall.

 

Overall, 44 per cent of respondents identified seasonal conditions as the most pressing factor impacting on their farm business over the next 12 months. Other important factors cited were commodity prices (21 per cent), the rising Australian dollar (18 per cent) and rising input costs (8 per cent).

 

Mr Dobbin said, while headline confidence had levelled out this quarter, improvements seen in the other sentiment indicators - investment intentions, income expectations and viability perceptions - were a positive sign for the sector.

 

Investment intentions were shown to be at their highest level for nearly two years indicating producers' confidence in the long-term future of the sector. Overall 34 per cent of respondents expected to increase investment in their farm business over the next 12 months, up from 31 per cent last quarter. Only 13 per cent planned to invest less in their business compared to 16 per cent the previous quarter.

 

Income expectations were also at their highest level since 2001, with 49 per cent of primary producers expecting higher incomes over the next 12 months, up from 47 per cent last quarter. Only 22 per cent were anticipating lower incomes, down from 25 per cent last quarter.

 

Mr Dobbin said grain farmers were the most confident about future income, reflecting the improved season for many grain growers.

 

"Dairy and beef farmers are also more confident about income prospects over the next 12 months, reflecting prospects for higher beef and milk prices, lower feed costs and improved allocations for irrigated dairy farmers," he said.

 

Confidence is lowest among cane farmers where the weak international price compounded by the stronger Australian dollar has influenced sentiment.

 

Current farm incomes appeared to be recovering from the effects of the 2002 drought, with 37 per cent of respondents reporting higher gross farm incomes in the first nine months of the year and 41 per cent lower incomes. At the same time last year, 30 per cent reported higher incomes and 52 per cent lower incomes.

 

The latest Rabobank Rural Confidence Survey showed sentiment was stable across most states, but with some changes among industry sectors.

 

Victorian farmers remained the most optimistic of all states (39 per cent expecting conditions to improve), while Western Australian primary producers registered the lowest levels of optimism (only 24 per cent expecting an improvement in the agricultural economy).

 

Mr Dobbin said the improvement in confidence among dairy farmers has pushed confidence higher in Victoria, while WA confidence reflected concerns about the dollar and commodity prices.

 

"After coming off a potential record grain crop in Western Australia, producers there believe there is more downside risk through the stronger dollar and lower commodity prices," he said.

 

Of the different commodity sectors, sentiment improved among dairy, beef and cotton producers, while confidence was lower among mixed livestock/grain farmers.

 

 

The Rabobank Rural Confidence Survey is a quarterly monitor of outlook and sentiment in Australian rural industries. The only study of its type in Australia, it is conducted by an independent research organisation interviewing a panel of approximately 2100 farmers throughout the country. The next results will be released in April 2004.

 

Rabobank Australia is a part of the international Rabobank Group, the world's leading specialist in food and agribusiness banking. Rabobank has more than 100 years' experience providing customised banking and finance solutions to businesses involved in all aspects of food and agribusiness. Rabobank has a AAA credit rating and, in recent years, has twice been awarded the title of the world's safest bank by Global Finance magazine. The bank operates in 35 countries, servicing the needs of more than nine million clients worldwide through a network of more than 1900 offices and branches.
Rabobank Australia is one of Australia's leading rural lenders and a significant provider of business and corporate banking and financial services to the Australian food and agribusiness sector. The bank has 39 branches through Australia.

 

Contact

For further information about the Rural Confidence Survey, please contact Denise Shaw, Public Relations Manager (Tel: +61 2 8233 8744) or email on sydney.confidence.survey@rabobank.com.