1 September 2008
Results at a Glance:
- Western Australian rural confidence has retreated from the near-record high achieved last quarter.
- Rising input costs – along with a softening in some commodity prices – had the biggest impact on farmer confidence.
- Sentiment has decreased among all farm types.
- Income expectations and investment intentions have also weakened
After reaching a near-record high last quarter, Western Australian farmer confidence has declined as high input prices bite the sector, the latest quarterly Rabobank Rural Confidence Survey has found.
The fall comes despite historically strong prices for key commodities and generally favourable seasonal conditions across much of the state.
The latest quarterly Rabobank Rural Confidence Survey – taken approximately one month ago – shows just 14 per cent of WA’s primary producers expect the agricultural economy to improve over the next 12 months, down from 59 per cent with that expectation last quarter. The survey also found that significantly more respondents expect conditions to worsen over the next 12 months – 53 per cent compared to only 11 per cent last quarter.
A definitive monitor of outlook and sentiment in Australian rural industries, the Rabobank Rural Confidence Survey questions an average of 1200 farmers across a wide range of commodities and geographical areas throughout Australia on a quarterly basis.
Rabobank state manager for Western Australia Crawford Taylor cautioned that the negative sentiment measured in the survey should not be viewed as an indication that WA farmers were facing a poor season.
“Last quarter saw confidence hit near-record highs in the state. The downturn in confidence we are seeing here is driven by the negative outlook for key input costs, biting into farm returns this year and into 2009,” he said.
Indeed, Mr Taylor said, 2008 is likely to be a profitable year overall for Western Australian farmers – a fact which was reflected in the survey’s finding that a large proportion of producers are expecting their farm incomes to increase over the next 12 months.
“At a general level, it is fair to say that the season has progressed well in nearly all parts of the agricultural region with finishing rains now the key for a successful season,” he said.
Input costs and commodity prices head the list of concerns for Western Australian primary producers.
“ Input costs are the dominant issue,” Mr Taylor said. “With the recent softening in grain prices, producers are concerned how margins may look in 2009 when factoring current input costs into farm programs.”
Of the WA farmers expecting the agricultural economy to decline over the next 12 months, i ncreasing input prices were ‘top of mind’, cited as a reason for pessimism by 79 per cent of respondents. A total of 29 per cent nominated falling commodity prices as a reason for their decreased confidence.
World grain and oilseed markets have experienced a softening of prices during August, as prices eased from record levels set in earlier in 2008. Although world grain and oilseed prices have fallen, they remain 25 per cent higher compared to prices in mid August last year. In comparison, other commodities, such as cotton and wool, have seen domestic prices increase with the Australian dollar weakness against the US dollar. The July Reserve Bank of Australia’s Commodity Index has returned to the same level as April after increasing five per cent from a seven-month low in May this year.
Despite the significant fall in underlying confidence, WA farmers’ income expectations remain strong. A total of 42 per cent of respondents expect their gross farm income to improve in the next 12 months, while just 17 per cent expect their incomes to fall. This result comes after a relatively mixed financial year for gross farm incomes in 2007/2008 – 27 per cent of WA producers reported higher gross farm incomes, while 31 per cent reported lower incomes.
Investment intentions, while moderating, also remain strong. A total of 26 per cent of respondents expected to increase investment in their farm businesses in the next 12 months, down from the 34 per cent recorded last quarter but well up on the eight per cent of respondents who indicated an intention to decrease investment in the next 12 months.
The most robust study of its type in Australia, the Rabobank Rural Confidence Survey has been conducted since 2000 by an independent research organisation interviewing an average of 1200 farmers throughout the country each quarter. The next results are scheduled for release in November 2008.
Rabobank Australia is a part of the international Rabobank Group, the world’s leading specialist in food and agribusiness banking. Rabobank has more than 110 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 50 locations 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.