29 May 2006

Results at a Glance:

 

• Rural confidence has again declined and remains at low levels.
• Sentiment weakened significantly among sheep and cotton producers, but remains strong among sugar farmers.
• Confidence had climbed in South Australia, but weakened substantially in Victoria and New South Wales. Tasmania had the highest confidence levels.
• Seasonal conditions had a greater impact on confidence levels this quarter.
• Farmers remain relatively positive about investment intentions and income expectations.

Australian rural confidence has continued to decline, with concerns about ongoing dry conditions and high input prices weighing increasingly on the minds of many of the nation's primary producers.

 

The latest quarterly Rabobank Rural Confidence Survey found 20 per cent of Australia's farmers expected the agricultural economy to improve over the next 12 months, down from 24 per cent with that view in the previous quarter. And the number of farmers expecting conditions to worsen in the coming year increased to 29 per cent, from 26 per cent last quarter.

 

It is the third successive quarter in which confidence levels have declined.

 

Rabobank head of rural banking Neil Dobbin said the fall in confidence witnessed this quarter was not surprising given many farmers are anxiously waiting for rain in order to commence their winter cropping programs, while livestock producers are also affected by the lack of feed and on-farm water supplies.

 

"Farmers in many areas are on the proverbial knife's edge right now," he said.

 

"While South Australia, Victoria and Western Australia have benefited from solid recent rains, farmers in other states have generally experienced drier-than-average autumn conditions."

 

Mr Dobbin said, while adequate rainfall would help to restore confidence in the sector, farm sentiment continues to be negatively affected by rising input costs and volatility in commodity prices.

 

"Farmers are usually cautious at this time of year as they wait for the break of season. But, with the high cost of fertiliser and other inputs making farming programs more risky, producers are feeling even less confident this year," he said.

 

The survey showed that the biggest issue impacting on rural sentiment is higher input costs, with seasonal conditions also becoming more 'top-of mind'. Of those farmers expecting the agricultural economy to worsen over the next 12 months, 42 per cent cited rising input costs as the reason, compared with 38 per cent last quarter. A total of 13 per cent of farmers identified fuel prices specifically as the reason for worsening conditions.

 

"This 'triple-whammy' of ongoing high fuel prices together with increases in fertiliser and crop chemical prices continues to have a significant impact on rural confidence," Mr Dobbin said.

 

Concern about seasonal conditions increased substantially in the latest survey, with 26 per cent of farmers citing this as a reason for the worsening agricultural economy over the next 12 months, up from 11 per cent last quarter.

 

The uncertain outlook for farm commodity prices also continues to negatively affect farm sentiment, despite a moderation in concern observed in the previous quarter. Commodity price uncertainty was identified as an issue by 33 per cent of respondents, down from the 46 per cent with that view last quarter.

 

Incomes and Investment

Despite the decline in confidence, farmers' income expectations and investment intentions were relatively stable in the last survey period.

 

"Income expectations and investment intentions remain relatively positive, suggesting more confidence in the long-term prospects of the sector," Mr Dobbin said.

 

Overall, 39 per cent of respondents expected to have higher incomes over the next 12 months, compared with 41 per cent with that expectation in the previous survey. And the number of producers expecting lower gross farm incomes was unchanged at 18 per cent.

 

The number of farmers expecting to increase investment in their farm business was also relatively stable at 28 per cent, compared with 29 per cent in the previous quarter.

 

States

The survey found rural confidence was sharply lower in New South Wales and also declined in Victoria and Queensland.

 

Mr Dobbin said dry conditions across much of New South Wales had contributed to the fall in sentiment which many areas receiving no significant falls of rain this year.

 

"There was a slight fall in confidence among Queensland farmers with the effects of Cyclone Larry being felt in some areas and dry conditions prevailing through much of the central and southern areas of the state," he said.

 

A marked improvement in sentiment was, however, witnessed in South Australia as a result of good autumn rain across much of the agricultural area in the state. Confidence also improved in Tasmania and was relatively stable in Western Australia.

 

Sectors

Confidence was weaker in all sectors, with the exception of grain farmers who reported a slight improvement in sentiment.

 

Mr Dobbin said increases in international grain and legume prices this year had contributed to improved confidence among cropping farmers, as had favourable growing conditions in South Australia, Victoria and Western Australia.

 

Sugar growers remain the most optimistic primary producers in the nation despite the effects of Cyclone Larry earlier in the year.

 

"Although there has been a moderation in prices over the past few months, sugar prices are still about double the level of 12 months ago," Mr Dobbin said.

 

"The prospect of a good cane harvest in areas not affected by Cyclone Larry has also contributed to the improvement in confidence."

 

The survey showed sentiment had declined sharply among sheep and cotton farmers in the last quarter, with cotton producers now the least optimistic sector.

 

The decline in wool prices in recent weeks, together with minor falls in lamb prices, had contributed to the moderation in sentiment in the sheep sector, Mr Dobbin said. Sentiment among cotton farmers had weakened due to the less than expected yields from the recent harvest, low prices, and uncertainty about water allocations for the forthcoming season.

 

The survey shows that beef producers' sentiment declined slightly and remains weak probably due to dry conditions. Prices have softened, but are still good.

 

Dairy farmers are somewhat concerned about dairy prices reaching a plateau or slightly falling and this will have affected sentiment particularly with increased input prices.

 

Interest Rates

The survey showed that the majority of farmers had correctly identified movements in interest rates by the Reserve Bank. With the survey taken largely prior to the recent interest rate increase, 57 per cent of respondents had expected higher rates over the next 12 months, up from 41 per cent last quarter. Only one per cent of respondents expected lower rates over the next 12 months.

 

Industrial Relations Laws

The survey also found the majority of farmers expect no benefit from the recently-announced changes to industrial relations laws. Only 13 per cent believe the changes will assist them in managing their business. "It may be that farmers need time to digest exactly what the changes will mean for their business," Mr Dobbin said.

 

 

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 August 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.