6 December 2005

Results at a Glance:

• Rural confidence has eased in the last quarter.
• Sentiment weakened in all states.
• Confidence weakened among all farm types with the exception of sugar.
• Higher input costs and softer commodity prices are having the biggest impact on farm confidence.
• Investment intentions and income expectations have declined slightly.

Rural confidence around the country has retreated this quarter, as fuel prices and the weakness in commodity prices take their toll, leaving farmers now more uncertain about the short term outlook.

The latest quarterly Rabobank Rural Confidence Survey has found 27 per cent of the nation's primary producers now expect the agricultural economy to improve over the next 12 months, down from 39 per cent with that view in the previous quarter. And more farmers expect conditions to worsen in the coming year - 27 per cent, up from 16 per cent last quarter.

Rabobank head of rural banking Australia & New Zealand Neil Dobbin said that following the dramatic increase in confidence observed last quarter, farmers were unable to sustain the higher confidence levels this quarter.

"Despite the widespread rainfall in the winter months improving pasture growth and crop yields, farm sentiment is being adversely affected by higher input costs and a weakening in commodity prices," Mr Dobbin said.

"The prospects for an above average winter grain crop in most areas have brought some joy to producers, however the weakening in grain prices and soaring input costs driven by higher fuel prices have many producers concerned about the short-term outlook.

"In some areas farmers also have been affected by difficult harvesting conditions."

Of those farmers expecting the agricultural economy to worsen over the next 12 months, 49 per cent cited higher input costs as the reason (up from 36 per cent with that concern in the previous survey).

Mr Dobbin said that the prospect of lower commodity prices are also front of mind for many producers, cited by 48 per cent of producers compared with 46 per cent last quarter.

A total of 47 per cent of respondents reported that higher fuel prices are negatively impacting on farm profitability to a large or very large extent, and a further 40 per cent to a moderate extent. Mr Dobbin said that when questioned about higher fuel prices in 2004, only 30 per cent believed the impact on farm profitability was large or very large.

Notably, only 11 per cent of respondents believed that seasonal conditions would have an adverse effect on the agricultural economy over the next 12 months down from 22 per cent last quarter.

Farmers' investment intentions moderated slightly in the last quarter, but continue to be relatively stable indicating a healthy level of underlying confidence in the sector. Overall 31 per cent of respondents expected to increase investment in their farm business in the next 12 months, compared with 33 per cent last quarter. And slightly more farmers expected to invest less in their business - 14 per cent compared with 11 per cent last quarter.

Income expectations have also declined slightly in the last survey period, consistent with the decline in headline confidence. A total of 47 per cent of primary producers expect to have higher incomes over the next 12 months, down slightly from the 49 per cent with that expectation in the previous survey. More farmers expect lower gross farm incomes over the next 12 months - 23 per cent compared with 17 per cent last quarter, Mr Dobbin said.

Of the different commodities, the latest Rabobank Rural Confidence Survey showed sentiment was weaker across all industries with the exception of sugar and cotton.

Mr Dobbin said that sugar producers are now the most optimistic sector on the back of the dramatic lift in sugar prices observed over the last 12 months, combined with higher than expected cane yields.

A slight increase in confidence was observed among cotton producers, but sentiment remains in negative territory, with continued price weakness contributing to the subdued sentiment, he said.

Despite a weakening in the last survey period, Mr Dobbin said that confidence remains strong among dairy farmers.

"The recent improvement in international dairy prices combined with favourable spring weather conditions and the prospect of above average water allocations for irrigators is contributing to the strong sentiment among dairy farmers," he said.

Sentiment weakened among beef and sheep producers with falls in beef prices over the last few months negatively influencing outlook in the sector. The fall in sentiment among sheep producers is not surprising given the prolonged downward trend observed in wool prices.

Mr Dobbin said that farmers' confidence weakened in all states and remains weakest in Western Australia, with the higher input costs and uncertain price outlook for wool and wheat negatively influencing sentiment.

"Farm sentiment remains strongest in Victoria, with the state's dairy farmers continuing to underpin positive sentiment in the state."

The survey showed that farmers are now more pessimistic over the direction of interest rate movements over the next 12 months. Of those surveyed, 51 per cent now expect higher rates in the next 12 months up from 39 per cent 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 March 2006.

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.