22 March 2005

Results at a Glance:

• Rural confidence has improved slightly but remains weak.
• Sentiment improved significantly in Victoria and Tasmania, but is lower in Western Australia and Queensland.
• Lower commodity prices continue to negatively influence sentiment.
• Confidence is strongest amongst dairy farmers and weakest amongst grain farmers.
• Investment intentions and income expectations have also improved.

Confidence among Australian farmers has improved slightly, but remains at low levels, 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 20 per cent with that view in the previous quarter. The number of farmers with a negative outlook fell - 28 per cent expecting conditions to worsen over the next 12 months, compared with 31 per cent last survey.

Rabobank head of rural banking Australia & New Zealand Neil Dobbin said farmers' confidence levels were being held back by lower commodity prices.

"The exception is the dairy industry where the higher price outlook and improved production in Victoria and Tasmania have significantly improved confidence," he said.

Mr Dobbin said the improved sentiment among dairy farmers was responsible for the overall upturn in confidence in the latest survey.

"Generally though, the weakness in agricultural commodity prices - particularly wheat, barley and canola - continues to negatively impact on sentiment, not withstanding the recent rally in wheat futures prices," he said

"Higher input costs are also reining in confidence, while all sectors are continuing to be adversely affected by the strong Australian dollar."

"Overall, after a mixed year in 2004, farmers around the nation are anxiously waiting for a good autumn break."

Of those farmers expecting the agricultural economy to worsen over the next 12 months, the survey showed 60 per cent blamed lower commodity prices compared with 39 per cent last quarter. Higher input costs were also shown to still be a concern, cited by 24 per cent (compared to 29 per cent last quarter). Significantly, only 15 per cent of respondents nominated seasonal conditions as the reason for their negative outlook, down from 42 per cent last quarter.

On the subject of climate, 33 per cent of farmers surveyed believed their farms had experienced abnormal seasonal conditions in recent years, identifying factors including hotter temperatures, reduced rainfall and noticeable changes to long-term weather patterns. However, 60 per cent believed recent drought conditions were part of a normal climactic cycle.

Respondents to the survey were more confident about income expectations over the next 12 months, with 44 percent expecting higher incomes over the coming year and 19 per cent anticipating lower incomes. This compared with the previous quarter where 34 per cent of primary producers believed their incomes would be higher and 26 per cent lower.

Farm incomes in 2004 reflected the mixed fortunes for farmers around Australia. A total of 42 per cent of primary producers reported higher gross farm incomes in 2004 compared with the previous year and 38 per cent lower. The majority of beef, dairy and sugar farmers reported higher incomes in this period, while grain and sheep producers said their incomes were lower.

Farmer's investment intentions improved slightly, although remain relatively stable. A total of 29 per cent of respondents expected to increase investment in their farm business over the next 12 months, compared with 25 per cent last quarter. Only 13 per cent planned to invest less in their business, unchanged from the previous quarter.

Of the different sectors, the latest Rabobank Rural Confidence Survey showed sentiment rose sharply among dairy farmers, but remains relatively weak among other farm types. Confidence is weakest among grain farmers who have been affected by the recent price falls and lower grain production in 2004.

Mr Dobbin said there had also been a decline in sentiment among cane farmers, due to a fall in sugar prices over the past few months.

"And, despite the continued strength in beef prices, confidence remains subdued among cattle producers, with many still affected by dry conditions," he said.

Of the states, confidence was sharply lower in Western Australia due to the falls in grain and wool prices. Sentiment improved slightly in South Australia, but remains in negative territory, with more farmers expecting agricultural economic conditions to worsen than improve.

Sentiment improved sharply in Tasmania and Victoria with the improved conditions among dairy farmers underpinning confidence there. Confidence remains relatively weak among other farm types in Victoria.

Taken before the recent interest rate rise, the Rabobank survey showed the majority of primary producers expected higher rates over the next 12 months. Of those surveyed, 74 per cent felt interest rates would increase over the next 12 months compared with 67 per cent expecting higher rates last quarter. However, the prospect of higher interest rates does not appear to be of significant concern to farmers, with only five per cent citing rising rates as a reason agricultural conditions will worsen over the next 12 months.

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 May 2005.

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 is ranked one 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.