New South Wales Farmer confidence eases, but sentiment remains positive

1 September , 2008

Results at a Glance:

• NSW rural confidence has fallen for the second successive quarter, although remains at a positive level.
• Rising input costs have had the biggest negative impact on farmer confidence.
• entiment remains strongest amongst the state’s grain growers.
• Income expectations and investment intentions have also decreased.

After reaching a record high six months ago, confidence has fallen in rural New South Wales for the second successive quarter, according to the results of the latest quarterly Rabobank Rural Confidence Survey.

However, NSW farmer confidence levels remain in positive territory, albeit marginally, with more farmers holding a positive outlook than those with a pessimistic view.

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.

The latest survey – taken approximately one month ago – found 31 per cent of primary producers in NSW expect the agricultural economy to worsen during the next 12 months. This figure has significantly increased from 20 per cent last quarter and just nine per cent at the beginning of 2008.

The survey showed 34 per cent of primary producers in NSW expect the agricultural economy to improve during the next 12 months – the same as the previous quarter but significantly lower than the 63 per cent recorded at the beginning of the year.

Rabobank state manager Northern NSW, Graham Yeo, said the easing of confidence was not surprising and indicated a ‘wait and see’ mentality which was to be expected, given the season to date.

“We had an encouraging start to the year, however rainfall through winter hasn’t really been enough to drive confidence upward,” he said.

Generally light rainfall has been experienced throughout most of the northern wheat belt, while southern NSW has benefited from patchy falls through July.

Mr Yeo said indications were that the falls will be sufficient to maintain existing winter crops, however many were planted late and will require follow-up rain before the season can be considered a success.

“The colder than average winter has many graziers concerned about the lack of pasture growth, however existing sub-soil moisture, combined with warmer temperatures, should see good growth this spring,” he said.

In addition to the less than ideal seasonal conditions, the continued high cost of fuel, fertiliser and chemicals was also squeezing NSW farm profitability and negatively influencing farmer sentiment, Mr Yeo said.

He said despite improvement in subsoil moisture levels across much of the state, low irrigation stores would affect options for summer crops in subsequent months, particularly for rice, cotton and some dairy producers.

“Irrigation dam levels remain mostly unchanged with little to no prospects of any worthwhile surface water available for impending cotton planting,” he said.

The latest survey showed that of those NSW farmers who expected conditions to decline over the next 12 months, 74 per cent believed rising input prices would be a major contributing factor. ‘Drought’ was also “top of mind”, mentioned by 38 per cent of respondents.

An expectation of more favourable seasonal conditions, along with strong commodity prices were the key drivers of positive sentiment amongst NSW producers.

World grain and oilseed markets have experienced a softening of prices during August, as prices eased from record levels set in June. Although world grain and oilseed prices have fallen in the past month, 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.

Consistent with the fall in headline confidence, investment intentions also fell, with 24 per cent of respondents expecting to increase investment in their farm businesses in the next 12 months, down from 28 per cent in the previous quarter.

Similarly, income expectations also fell, with 39 per cent of NSW primary producers expecting their gross farm income to improve in the next 12 months, down from 46 per cent who anticipated higher incomes last quarter.

The decline in income expectations comes after a mixed financial year for gross farm incomes in the 2007/2008 income year. A total of 31 per cent of NSW producers reported higher gross farm incomes in the past financial year, with 30 per cent reporting lower incomes.

The latest survey also found that a shift in the mix of agricultural production can be expected over the next 18 months in NSW, with 37 per cent of farmers indicating intentions to change their enterprise mix. Net increases in the production of grain and prime lamb are forecast, whilst cotton production looks set for the biggest downward shift, with many producers seeking to convert to alternate crops.

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.

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