27 November 2006

Results at a Glance:

 

• Rural confidence continues to fall and is now at record lows.
• Sentiment weakened dramatically in all states, with the exception of Western Australia.
• Confidence is weak in all sectors with significant falls among livestock producers.
• Investment intentions and income expectations have also declined dramatically.
  

Australia's farmer confidence levels have fallen to record lows as prolonged dry conditions around the nation continue the downward spiral in rural sentiment.

 

The latest quarterly Rabobank Rural Confidence Survey shows farmer confidence - which has been declining steadily for more than 12 months - is now at its lowest level in the six-year history of the Rabobank Rural Confidence Survey. Sentiment has now dropped below the levels observed in 2002 near the peak of the last drought.

 

The latest survey has found 65 per cent of farmers expect the agricultural economy to worsen over the next 12 months, well up from 37 per cent last quarter. Only 15 per cent expected the agricultural economy to improve over the next 12 months, compared with 19 per cent last quarter.

 

Rabobank head of rural banking Neil Dobbin said the continuing fall in confidence is a result of the poor outcome from winter cropping, reduced water allocations for irrigators and difficult conditions confronting many livestock producers.

 

"Many farmers face the prospect of little or no returns from winter cropping programs after incurring significant planting costs," he said. "Although on the positive side, recent rain through summer cropping areas in northern NSW and Queensland has put some hope back into the prospects for the summer crops."

 

Mr Dobbin said ongoing dry conditions have also meant many livestock producers in southern states have been forced to sell in a market which has declined in recent months or incur high costs for feed to retain stock.

 

"While the federal government assistance package will assist many of the country's primary producers, a large number are still in for a difficult period ahead struggling to cover expensive feed bills and other input costs," he said.

 

The last Rabobank survey showed, not surprisingly, that dry weather was the dominant factor denting Australian farmers' confidence levels.

 

Of those farmers expecting the agricultural economy to worsen over the next 12 months, 91 per cent cited drought as the reason, significantly up from 57 per cent last quarter and 26 per cent six months ago.

 

Concern over higher input costs - such as fuel, fertilisers and chemicals - has moderated, cited by just 14 per cent of respondents (compared to 32 per cent last quarter). Similarly, farmers' worries about the direction of commodity prices have also eased with only 11 per cent of respondents identifying this as a reason for weakening confidence, down from 21 per cent last quarter.

 

Incomes and Investment

Farmers' income expectations and investment intentions have also slumped. Investment intentions are now at their lowest levels in the history of the survey, with income expectations at four-year lows.

 

Overall, 49 per cent of respondents expected to have lower incomes over the next 12 months, compared with 28 per cent with that expectation in the previous survey. The number of producers expecting higher gross farm incomes decreased to 22 per cent compared to 35 per cent last quarter.

 

The number of farmers expecting to reduce investment in their farm business over the next 12 months increased to 31 per cent, from 16 per cent in the previous survey. And the number of farmers expecting to increase investment fell to 16 per cent, down from 27 per cent last quarter.

 

States

The Rabobank survey found rural confidence was weak in all states, with sharp falls in all areas except Western Australia.

 

The largest declines in confidence were observed in South Australia, New South Wales and Victoria.

 

Mr Dobbin said the situation was similar in all these states with poor outcomes from winter cropping programs and lack of fodder and water for livestock contributing to the fall in sentiment.

 

"The fall in confidence in South Australia comes after an excellent start to the season. Unfortunately the extremely dry winter has resulted in confidence being sharply eroded over the past six months," he said.

 

On a more positive note there was an improvement in confidence in Western Australia, with many farmers looking forward to next year and a return to more normal seasonal conditions.

 

"Rainfall late in the cropping season in some areas of WA has helped to improve confidence but conditions remain poor in most regions," Mr Dobbin said.

 

Sentiment remains strongest in Queensland despite falls observed this quarter.

"The stronger sentiment in Queensland continues to be underpinned to some extent by the confidence among the state's sugar producers despite a weakening this quarter," Mr Dobbin said.

 

Sectors

Sentiment was weak across all sectors with significant falls observed among dairy, beef and sheep producers.

 

Mr Dobbin said the decline in sentiment among dairy farmers comes at a time when dairy prices remain relatively strong.

 

"The prospect of low water availability for irrigators combined with the dramatic increase in fodder costs has weakened confidence in the sector," he said.

 

Beef and sheep producers have been affected by low water and feed availability and the prospect of selling stock into weaker markets.

 

"The rise in wool prices over the last few weeks may help to restore some confidence in that sector," Mr Dobbin said.

 

Sugar producers remain the most optimistic of the sectors, despite a decline in confidence in the last survey period which follows decreases over the past 12 months.

 

The falls in the international price outlook are continuing to negatively impact on sentiment among sugar producers, Mr Dobbin said.

 

Interest Rates

Pessimism about the direction of interest rates continues among primary producers. With the survey taken largely prior to the recent interest rate rise, 73 per cent of respondents were expecting higher rates over the next 12 months, compared to 83 per cent in the previous survey. Only two per cent of respondents expected lower rates over the next 12 months.

 

Climatic Conditions

The majority of farmers believe that the recent drought conditions were part of the normal climatic cycle. However, 33 per cent of farmers surveyed believed their farms experienced abnormal seasonal conditions in recent years due to the length of the current drought and the number of droughts observed.

 

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 are scheduled for release in March 2007.

 

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 banks by Global Finance magazine. The bank operates in 38 countries, servicing the needs of more than nine million clients worldwide through a network of more than 1500 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 Scott Bradburn, Research Manager (Tel: +61 2 8115 4857) or email on sydney.confidence.survey@rabobank.com.