Continuing slide in SA farmer confidence as drought and input costs take their toll

1 December 2008

Results at a Glance:

• Following a near record high just over 12 months ago, rural confidence has fallen for the third successive quarter in South Australia.
• Drought and input prices had the biggest negative impact on farmer confidence this quarter.
• Investment intentions have also fallen.
• South Australian agricultural producers were mostly of the opinion that they had yet to be impacted by the global credit crisis - 65 per cent of producers indicated ‘no impact as yet’.

After reaching a record high just over 12 months ago, farmer confidence has fallen in South Australia for the third successive quarter, according to the results of the latest Rabobank Rural Confidence Survey.

Confidence is yet to hit the lows recorded two years ago and during the 2002 drought, however a significant break in the prevailing dry conditions will be needed to prevent sentiment slipping to these levels over the summer season.

A comprehensive 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 – showed just 13 per cent of primary producers in SA expect the agricultural economy to improve over the next 12 months, down from 24 per cent with that expectation last quarter and 39 per cent the quarter before that.

Rabobank state manager for South Australia, James Robinson said the fall in farmer confidence was expected given the below average rains experienced through spring and farmers in the region feeling the pressure from high input prices.

”In general terms, after excellent rains in July and August, most cropping regions are reporting their worst spring rains on record. Crops are on track for below to average yields in the Mount Gambier region, however the Eyre Peninsula, Mid North, Yorke Peninsula and Mallee are all expecting below average yields,” he said.

“The Eyre Peninsula has probably been the most affected region, with many crops failing. Farmers in the worst areas of the region are unlikely to take the header out of the shed.”

Large tracts of pastoral SA remain extremely dry which has seen some stations destock due to no feed or dam water. Fortunately, pasture growth for livestock is good in the lower and upper South East with most graziers having a normal pasture hay season.

Current water allocations are unchanged and remain at 15 per cent.

“This allocation is well down on last year,” Mr Robinson said. “With uncertainty regarding the likelihood of this going up, many irrigators face a difficult decision. Most will need more water to support a crop so will turn to leasing if they are not confident of an increase.”

The Rabobank survey found drought to be the main inhibitor of SA farmer confidence, with 57 per cent of producers who expected conditions to worsen over the next 12 months citing this as a contributing factor, while input prices were also ‘top of mind’ mentioned by 46 per cent of respondents.

Increased prices for fertiliser and chemicals have resulted in a significant rise in the cost of inputs for producers in the past 12 months.

Mr Robinson noted that international prices for key inputs such as oil and fertiliser had fallen but that domestic prices were taking some time to follow.

“It can take some time for local suppliers to source fertiliser and chemicals,” he said. “We are currently in a situation where local demand is keeping the price high for some inputs as supply is restricted. Additionally, high priced inventories still carried by many suppliers are also responsible for the lag between falls in international and domestic prices.”

In addition to concerns regarding drought, commodity prices are also increasing as a concern for most producers.

Recent global financial market turmoil has had a significant impact on most agricultural commodity markets, fuelling unprecedented levels of price volatility. The price weakness seen in recent months has continued throughout October and early November with fears of a protracted global economic downturn weakening demand and price expectations for the coming year, particularly in developing nations. Australia's major agricultural commodity prices – as indicated by the Reserve Bank of Australia's Rural Commodity Index – had fallen 29 per cent in October, in US dollar terms, from a record high reached in March this year. However, Australian primary producers have been somewhat protected from the downturn in world prices by a weaker domestic currency, with the same index in Australian dollar terms falling by only five per cent over the March to October period.

Consistent with the decrease in headline confidence, investment intentions also weakened, with 20 per cent of respondents expecting to increase investment in their farm businesses in the next 12 months, down from 31 per cent in the previous quarter.

The latest Rabobank Rural Confidence Survey also found that SA agricultural producers were largely of the opinion that they had yet to be impacted by the global credit crisis. When asked, "How has the global credit crisis currently affecting the
global financial sector impacted on your business?", 65 per cent of producers responded ‘No impact as yet’.

Grain producers and dairy producers were the most likely to be impacted, with ‘lower commodity prices’ the most common effect experienced. Other common impacts listed by producers included; ‘more difficult economic conditions’ and ‘increased input costs’.

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 a panel of approximately 1200 farmers throughout the country each quarter.

The next results are scheduled for release in March 2009.

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

To arrange an interview with Rabobank state manager South Australia James Robinson, or for more information on Rabobank’s Rural Confidence Survey, please contact:

Denise Shaw, Public Relations Manager
Phone: 02 8115 2744 or 0439 603 525
Email: Denise.Shaw@rabobank.com
or
Elise MacDonald, Public Relations Consultant
Phone: 02 8115 4861
Email: Elise.MacDonald@rabobank.com

back to top