13 September 2004 - 3rd Quarter 2004

 

Results at a Glance:

 

• Rural confidence has improved throughout Australia.
• Sentiment is stronger in all states with sharp increases in New South Wales, Victoria and Tasmania.
• Volatile commodity prices, however, continue to negatively influence sentiment.
• Investment intentions are up and income expectations have also improved.
• Confidence is lower amongst grain and cotton farmers, but stronger in all other sectors.

 

Rural confidence has reversed its downward trend, rising for the first time in more than a year, according to the latest quarterly Rabobank Rural Confidence Survey.

 

The survey found 28 per cent of the country's primary producers expected the agricultural economy to improve over the next 12 months, up from just 16 per cent who held that view in the previous quarter.

 

And the number of farmers with a negative outlook declined - with 22 per cent expecting conditions to worsen over the next 12 months, down from 30 per cent last survey.

 

Rabobank head of rural banking Australia & New Zealand Neil Dobbin said farmers' confidence levels had been buoyed by improvements in seasonal conditions in many parts of Australia.

 

"In particular, most of the major cropping areas of Australia received adequate rainfall to at least set up prospects of a good winter crop," he said.

 

"Improvements in dairy and sugar prices, along with continued strong livestock prices, contributed to lifting the aggregate sentiment in the rural sector."

 

However, Mr Dobbin said, generally lower prices for several other rural commodities, along with continuing poor seasons in a number of regions, were keeping confidence levels in check.

 

"There are still a number of factors at play that are putting a brake on confidence rising too highly at the moment," he said.

 

"Recent decreases in wheat and other grain prices are obviously having an effect, while wool, cotton and oilseed price falls are also negatively influencing sentiment.

 

"Added to this, a number of areas of the country are still in need of decent rains to provide adequate soil moisture. Despite some winter rain, most of New South Wales, for example, remains drought declared. Irrigation dam storage levels are also in a precarious state in a number of regions, including southern Queensland. "

 

Of those farmers expecting the agricultural economy to worsen over the next 12 months, the survey showed 39 per cent blamed lower commodity prices and 38 per cent seasonal conditions.

 

Rising input costs were also affecting sentiment, with 18 per cent of primary producers citing these as a negative factor impacting their confidence, up from 14 per cent last quarter.

 

Higher fuel prices, in particular, appear to be impacting on rural confidence, with 30 per cent of those surveyed believing higher fuel costs were having a large impact on farm profitability with a further 42 per cent considering the impact to be moderate.

 

"We believe that fuel represents about eight to 10 per cent of a typical farm's direct input costs, so an increase in fuel prices is going to have a noticeable impact on all farm businesses, without even taking into account the indirect expenses arising from higher transport and other flow-on costs," Mr Dobbin said.

 

On a positive note, he said, the survey showed farm incomes were continuing to recover from the effects of the drought, with 43 per cent of primary producers reporting higher gross farm incomes in the 2003/04 financial year (compared to the previous year) and 34 per cent lower. At the same time last year, only 25 per cent reported higher incomes and 58 per cent lower incomes.

 

Survey respondents were also more confident about income expectations over the next 12 months, with 42 per cent expecting higher incomes over the next year and only 19 per cent anticipating lower incomes. This compared with the previous quarter where 33 per cent believed their incomes would be higher and 24 per cent lower.

 

The survey showed investment intentions had also improved on the back of generally improved sentiment. Overall 28 per cent of respondents expected to increase investment in their farm business over the next 12 months, up from 23 per cent last quarter. Only 11 per cent planned to invest less in their business, compared to 13 per cent the previous quarter.

 

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

 

Sentiment improved sharply in New South Wales, Victoria and Tasmania, though only slightly in the other states.

 

"As major grain-growing regions, confidence in South Australia and Western Australia is being affected more by the volatility in commodity prices," Mr Dobbin said.

 

The survey showed Victoria to now have the highest rural confidence in the nation and South Australia, the lowest.

 

Of the different sectors, confidence was lowest among grain and cotton farmers, with sharp increases in sentiment among sugar and dairy farmers. Confidence had also improved among beef and sheep producers.

 

Mr Dobbin said falls in wheat and other grain prices had undoubtedly impacted on confidence in the cropping sector.

 

"Conversely, higher milk prices, improved seasonal conditions and prospects of lower feed costs have positively impacted confidence among dairy farmers. Higher world prices have helped prospects for sugar farmers following the low prices observed for the 2003 crop."

The survey also showed that most farmers continued to expect higher interest rates over the next 12 months. Of those surveyed, 69 per cent felt rates would increase over the next 12 months compared with 65 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 more than 2000 farmers throughout the country. The next results will be released in November 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 46 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.