May 28, 2007

Results at a Glance:

• Rural confidence had eased in Victoria from the previous quarter's highs.
• However, last week's rains expected to see strong upswing in confidence in coming weeks.
• The rising Australian dollar - along with ongoing concerns about seasonal conditions - had biggest impact on farmer confidence in this survey.
• Sentiment had weakened amongst all farm types.
  

Victorian farmer confidence had declined in recent weeks, but is expected to rebound strongly off the back of recent good rains in the state.

The latest Rabobank Rural Confidence Survey shows Victorian rural confidence levels had begun to recede over April and May, after a promising start to the year.

However, last week's heavy rains in many parts of the state are expected to result in a significant improvement in farmer confidence over the coming months.

Rabobank state manager Victoria Mark Bennett said good rainfall particularly in the broadacre cropping areas, including the Wimmera and Mallee regions, had set the foundation for a potentially good season.

Mr Bennett said figures from the latest Rabobank survey - taken between mid-April and mid-May this year - indicated that Victorian farmers had been starting to lose hope that the predicted autumn break would come, after registering a more optimistic outlook earlier in the year.

The latest survey showed that only 35 per cent of Victorian primary producers had expected the agricultural economy to improve over the coming 12 months, down from 47 per cent with that view the previous quarter. Conversely, the number expecting economic conditions to deteriorate in the next 12 months had risen to 34 per cent, up from 19 per cent last quarter.

The quarterly Rabobank monitor surveys an average of 2000 primary producers a quarter, with the sample representing a wide range of commodities and geographic areas throughout Australia.

Mr Bennett said that the decline in sentiment registered in the survey was not surprising given rainfall since March had been sparse and, for the most part, isolated to pockets that did not feed major catchments.

"Up until just over a week ago, we'd only had patchy rains across the state for most of the year," he said.

"And even with the recent good rains, water storages for irrigation systems remain very low. We still need average to above-average winter and spring rainfall to achieve inflows and improve water allocation prospects for irrigated farms."

Of those farmers surveyed who had expected conditions to decline over the next 12 months, 93 per cent cited seasonal conditions as a major contributing factor, up from 74 per cent last quarter. The rising Australian dollar was also "top of mind", cited by 14 per cent of respondents, while "falling commodity prices" was nominated by eight per cent of farmers.

According to Rabobank's Food & Agribusiness Research division, rural commodity prices in Australian dollar terms have eased to their lowest level since January 2006, weighed down by an Australian dollar that has reached 15-year highs against the US dollar in the past month. Adding to the downtrend, global prices for cotton and sugar have continued to weaken, although these losses have been mostly offset by further price gains for the dairy, wheat and beef sectors. Australian commodity prices in US dollar terms have declined marginally in recent months and are now just below recent historical highs.

The survey showed Victorian dairy farmers relying on irrigation continued to be affected by low water allocations and very high feed prices, with their confidence retreating from previous levels.

"There has been isolated early rains in our dairy regions, but it's the high cost of inputs, particularly feed which is in very short supply." Mr Bennett said. "While milk prices look strong for the medium term at least, many dairy farmers are frustrated at their limited ability to capitalise in the current high-cost environment.

"The recent rains will improve prospects for pasture growth and hence confidence, however all grazing based systems still face the issue of feeding livestock through to spring, and also rebuilding to optimum stocking rates."

Despite rising input costs, particularly fertiliser, grain producers were shown to be the most confident farmers in the state, with 55 per cent expecting conditions to improve.

Mr Bennett said the outlook for the grains industry was positive, with world commodity price and future demand prospects favourable.

Corresponding with the fall in headline confidence, the survey showed Victorian farmers' income expectations also fell, with 32 per cent of respondents expecting their gross farm income to improve in the next 12 months, down from the previous quarter when 38 per cent anticipated higher incomes.

Farmers' investment intentions also decreased, albeit slightly, with 25 per cent of primary producers expecting to increase investment in their farm businesses in the next 12 months, down from the 26 per cent recorded the previous survey.

The quarterly Rabobank Rural Confidence Survey is a definitive monitor of outlook and sentiment in Australian rural industries. The most robust study of its type in Australia, the survey has been conducted since 2000 by an independent research organisation. The next results will be released in August 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 43 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 branch locations 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.