Tasmanian farmer confidence falls, driven by low sentiment in the south

1 December 2008

Results at a Glance:

• Following two quarters of consistent improvement, Tasmanian rural confidence has fallen this quarter and is now at a negative level.
• The drought continues to dampen sentiment in the south and south east of the state, while high input costs remain a significant factor in all areas.
• Consistent with the decrease in underlying confidence, investment intentions in the state also eased this quarter.
• Tasmanian agricultural producers were mostly of the opinion that they had yet to be impacted by the global credit crisis - 74 per cent of producers indicated ‘no impact as yet’.

Tasmanian farmer confidence has fallen this quarter, however confidence levels vary significantly across regions and industries, according to the results of the latest Rabobank Rural Confidence Survey.

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 46 per cent of primary producers in Tasmania expect the agricultural economy to worsen over the next 12 months, up from 25 per cent last quarter.

Rabobank senior manager for Tasmania, Greg Bott, said the variability recorded was not surprising given the seasonal conditions through spring.

“The south and south east of Tasmania remains dry. Dams and storages are mostly empty and allocations are low. A dry spring in these regions has followed a very dry winter, and several seasons of below average rain. Recent falls in the price of key commodities and high input prices is compounding the problems in the south, Mr Bott observed.

Conversely, most farmers on the northern fringe would consider the current season to be fair.

Mr Bott said “at a general level in the north I would consider spring to be dryer than average however late falls in November have certainly helped. Croppers and dairy producers in the north west, north east and circular head dairy sectors have received enough rain to achieve some good results.”

“Unfortunately, grain prices have decreased in response to the good harvest in the northern hemisphere and lower demand, probably due to the impact of the global financial crisis. While a negative for grain growers this is a benefit for dairy farmers
and is offsetting some of the drop in milk price.”

Of the Tasmanian farmers who expected the agricultural economy to worsen in the next 12 months, 51 per cent cited drought while 35 per cent nominated input prices as a major reason.

Mr Bott noted that while prices for petrol and diesel had fallen, domestic prices for key inputs such as fertiliser and chemicals were taking longer to fall as a response to a decrease in global prices.

“It can take some time for local suppliers to source fertiliser and chemicals due to availability and shipping times which partly explains the lag. Additionally, high priced inventories still carried by many suppliers are also responsible. Hopefully we will see a softening in prices by Christmas,” he said.

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 16 per cent of respondents expecting to decrease investment in their farm businesses in the next 12 months, up from 12 per cent in the previous quarter.

The latest Rabobank Rural Confidence Survey also found that Tasmanian 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?’, 74 per cent of producers responded ‘No impact as yet’. Sheep/wool producers were the most likely to be impacted. Common impacts listed by producers included; ‘more difficult economic conditions’, ‘tighter lending criteria’ 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 senior manager Launceston Greg Bott 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

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