29 March 2004

Results at a Glance:

 

• Rural confidence has declined throughout Australia.
• The strong Australian dollar continues to negatively influence sentiment.
• Sentiment is sharply lower in Victoria, South Australia and Western Australia and stable in the other states.
• Investment intentions continue to be relatively stable.
• Income expectations are also lower.
• Confidence is sharply lower amongst grain and dairy farmers and stable among beef and sheep producers.
  

Rural confidence across Australia has slipped to its lowest level in more than a year on the back of a rising dollar and lower commodity prices, according to the latest quarterly Rabobank Rural Confidence Survey.

 

The survey found 25 per cent of the country's primary producers expected the agricultural economy to improve over the next 12 months, down on the 33 percent who held that view last quarter.

 

The number of farmers with a negative outlook also increased - 31 per cent expecting conditions to worsen over the next 12 months, up from 27 per cent last quarter.

 

Rabobank head of rural banking Australia & New Zealand Neil Dobbin said rural confidence levels were being affected by the strong Australian dollar and volatility in commodity markets.

 

Of those farmers expecting the agricultural economy to worsen, 64 per cent attributed it to the rising Australian dollar and 28 per cent to falling commodity prices. Seasonal conditions appear to have been less of a factor with 10 per cent citing drought as the reason for a decline in sentiment compared to 21 per cent last quarter.

 

"The Australian dollar has risen by nearly 25 per cent since March 2003 and at one point touched 80 cents. This currency increase is obviously constraining returns for Australian farm exports," Mr Dobbin said.

 

"The more optimistic outlook in some areas due to recent rainfall has been offset by gloomier expectations for commodity prices, partly as a result of the strong Australian dollar."

 

The survey found mixed feelings about the planned Free Trade Agreement with the United States. Of those surveyed, 34 per cent of farmers considered the FTA would have a positive effect on the agricultural sector while 31 per cent believed it would have negative or no effect.

 

Mr Dobbin said that, while headline confidence had fallen in the last quarter, investment intentions remained relatively stable. Overall 28 per cent of respondents expected to increase investment in their farm business over the next 12 months, down slightly from 34 per cent last quarter. Only 13 per cent planned to invest less in their business, unchanged from the previous quarter.

 

"The relative stability in investment intentions is a positive sign for the sector because it signals a more optimistic outlook in the longer-term," he said.

 

Survey respondents were less confident about income expectations over the next 12 months, with 39 per cent expecting higher incomes over the next 12 months and only 22 per cent anticipating lower incomes. This compared with the previous quarter where 49 per cent believed their incomes would be higher and 22 per cent lower.

 

Farm incomes continue to recover from the effects of the drought in 2002, with 40 per cent of primary producers reporting higher gross farm incomes in 2003 compared with the previous year and 41 per cent lower. At the same time last year, 37 per cent reported higher incomes and 50 per cent lower incomes.

 

The latest Rabobank Rural Confidence Survey showed sentiment varied widely between states and across industry sectors.

 

Sentiment was lower in South Australia, Victoria and Western Australia, relatively stable in New South Wales and Tasmania and slightly improved in Queensland.

 

Mr Dobbin said following record winter grain crop production in 2003/04 in Victoria and WA and near record in SA, many primary producers apparently believed there was more downside risk in the coming year.

 

NSW now had the highest rural confidence in Australia.

 

Mr Dobbin said the stability in confidence reflected the improved seasonal conditions in many areas of the state offsetting the effects of generally lower commodity prices.

 

"Many farmers are optimistic about a more successful winter cropping season in NSW following the recent rainfall and improved yield potential of summer crops," he said.

 

The survey showed sentiment was sharply lower among grain and dairy farmers.

"Announcements of lower pool price estimates for the 2004/05 winter grain crop by the major grain marketing organisations have obviously affected confidence," Mr Dobbin said.

 

"Dairy farmers believe there is little likelihood of any improvement in milk prices given the effects of the strong currency on their returns.

 

"Beef producers, however, are the most optimistic of all sectors as a result of the improved conditions in many beef producing areas and the relatively favourable beef prices."

 

The survey also showed that most farmers continue to expect higher interest rates over the next 12 months. Of those surveyed, 81 per cent felt that rates would increase over the next 12 months compared with 80 per cent expecting higher rates last quarter.

 

 

 

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 2000 farmers throughout the country. The next results will be released in June 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 41 branches throughout 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.