27 March 2006

Results at a Glance:

 

• Rural confidence has stabilised, but remains weak.
• Sentiment improved among sugar and sheep farmers, but weakened in other sectors.
• Confidence was strongest in Queensland and weakest in South Australia.
• Higher input costs and volatile commodity prices are having the biggest impact on farm confidence.
• Farmers are more positive about investment intentions and income expectations.

Rural confidence has stabilised in Australia, but remains relatively weak with slightly more farmers expecting conditions to worsen over the next 12 months than those expecting conditions to improve.

 

The latest quarterly Rabobank Rural Confidence Survey found 24 per cent of the nation's primary producers now expect the agricultural economy to improve over the next 12 months, down from 27 per cent with that view in the previous quarter. However, the number of farmers expecting conditions to worsen in the coming year fell to 26 per cent from 27 per cent last quarter.

 

The survey found confidence had improved significantly among sugar and sheep producers, but was generally weaker in other sectors.

 

Rabobank head of rural banking Neil Dobbin said, while the full impact of last week's cyclone devastation on far north Queensland sugar production had yet to be known, it would undoubtedly represent a significant blow to the sugar industry, with an estimated 20 per cent of Australian production coming from the region. The survey was undertaken prior to the cyclone occurring.

 

Overall, Mr Dobbin said, the survey showed farmers continued to remain cautious about the short-term outlook.

 

"Farmers feel like they are treading water at the moment, with many feeling like they are not making any real gains in their business," he said.

 

"Despite a relatively favourable production year in 2005, their sentiment continues to be adversely affected by high input costs and volatile commodity prices.

 

"Farmers are also cautious in the lead-up to the winter cropping season, with much of the eastern states experiencing drier than normal conditions in the early part of 2006. And with fertiliser and crop chemical costs continuing to rise, primary producers continue to be concerned about the short-term prospects for their businesses."

 

Despite increases in many commodity prices over the past few months, producers remain concerned about price falls in the future. Of those farmers expecting the agricultural economy to worsen over the next 12 months, 46 per cent cited falling commodity prices as the reason, compared with 48 per cent last quarter.

 

"There is a very significant uncertainty and volatility at play in global commodity markets at present, particularly in Australia's two largest agricultural sectors, grain and beef," Mr Dobbin said.

 

Higher input costs were cited as a concern by 38 per cent of respondents, down marginally from the 49 per cent with that view last quarter. Significantly, only 11 per cent of respondents believed seasonal conditions would be responsible for the worsening agricultural economy over the next 12 months, unchanged from last quarter.

 

Incomes

Farmers continue to be more positive about investment intentions and income expectations, indicating more confidence in the long-term prospects of the sector. Overall 29 per cent of respondents expected to increase investment in their farm business in the next 12 months, compared with 31 per cent last quarter. However, fewer farms expected their investment to decline over the next 12 months - 11 per cent compared to 14 per cent last quarter.

 

Income expectations were also relatively stable, with a total of 41 per cent of farmers expecting to have higher incomes over the next 12 months, down from the 47 per cent with that expectation in the previous survey. However, fewer farmers expected lower gross farm incomes - 18 per cent compared with 23 per cent last quarter.

 

The more positive outlook for income expectations follows a mixed year for farm incomes in 2005, Mr Dobbin said.

 

A total of 42 per cent of farms reported higher gross farm incomes in 2005 and 33 per cent lower incomes. Sugar and dairy farmers fared best on incomes levels with around 65 per cent reporting higher gross farm incomes in 2005 than in 2004. Sheep farmers fared worst with only 25 per cent reporting higher gross farm incomes in 2005 and the remainder the same or worse.

 

States

Mr Dobbin said the survey had found farmer confidence had risen sharply in Queensland and was higher there than any other state, with the improved prospects for the state's sugar producers a major contributing factor. However, this had been before Cyclone Larry hit the far north of the state.

 

"The cyclone has undoubtedly caused severe damage to many cane and horticultural crops in the region," Mr Dobbin said. "However with other factors, such as prices and demand, remaining positive and with the support of the rest of Australia until these industries get back on their feet, the long-term outlook is positive."

 

Confidence levels fell in Victoria, reflecting a reduction in expectations among the state's dairy farmers that there will be further improvements on the current high farm gate prices.

 

Confidence is weakest in South Australia after a decline in the last survey period with the prospect of higher input costs and uncertain commodity prices affecting the state's grain farmers in particular.

 

Sectors

Of the different agricultural sectors, confidence had improved significantly among sugar and sheep producers, but was generally weaker in other sectors.

 

Mr Dobbin said sugar producers had reported being much more optimistic than other sectors with continued increases in sugar prices along with favourable conditions for cane establishment underpinning confidence. A total of 91 per cent of cane farmers reported they expected higher gross farm incomes over the next 12 months.

 

"Similarly sheep producers are also more confident on the back of the higher wool prices observed over the past few months," he said.

 

Grain producers are now the least optimistic of all Australia's farmers, with high fuel, fertiliser and crop chemical costs, along with softer commodity prices for last year's crop continuing to negatively affect sentiment in the sector.

 

Sentiment also remains weak among beef and cotton producers. The fall in beef prices over the last six months has affected confidence in the sector despite some gains over the past few weeks. In addition, producers in parts of Queensland and New South Wales are still experiencing dry conditions.

 

Cotton yields in the current harvest may be down due to the extreme heat in early January in some areas, which has affected confidence, while the poor outlook for long term prices may also be impacting on sentiment.

 

Interest Rates

The survey showed farmers continue to be pessimistic over the direction of interest rate movements over the next 12 months, despite a moderation in the last quarter. Of those surveyed, 41 per cent expect higher rates in the next 12 months, down from 51 per cent last quarter. However, only one per cent of respondents expect interest rates to fall 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 approximately 2000 farmers throughout the country. The next results will be released in May 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 banks 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 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 Denise Shaw, Public Relations Manager (Tel: +61 2 8233 8744) or email on sydney.confidence.survey@rabobank.com.