Victorian farmer confidence retreats, but still among highest in nation

1 September 2008

Results at a Glance:

• Despite easing this quarter, the confidence levels of Victorian farmers are amongst the highest in the country.
• Expectations of favourable seasonal conditions – along with strengthening commodity prices – had the biggest impact on farmer confidence.
• Sentiment is strongest among cereal and dairy producers who have been buoyed by strong commodity prices.
• In line with the easing of headline confidence, investment intentions and income expectations have also moderated.

After reaching record highs 12 months ago, Victorian farm confidence has declined, but remains among the highest in Australia, according to the latest quarterly Rabobank Rural Confidence Survey.

The survey – taken approximately one month ago – shows Victorian farmer confidence remains in positive territory, with more farmers expecting conditions to improve over the next 12 months than those expecting them to worsen.

The survey shows 35 per cent of primary producers in Victoria expect the agricultural economy to improve over the next 12 months, down from 40 per cent last quarter and 49 per cent in early 2008. A total of 23 per cent of farmers expect the agricultural economy to worsen, compared to 18 per cent in the previous survey.

A definitive monitor of outlook and sentiment in Australia’s rural industries, the Rabobank Rural Confidence Survey questions an average of 1200 farmers across a wide range of commodities and geographical areas throughout the nation on a quarterly basis.

Rabobank state manager for Victoria Mark Bennett said farmers were becoming increasingly cautious, with high input costs impacting sentiment and patchy winter rainfall leading to significant regional differences in survey results throughout the state.

“Seasonal conditions have been good at a general level through the state,” he said. “The northern parts of Victoria have had just enough rain to sustain planted crops, however grain growers will be anxious for follow-up rain to consolidate their position coming into the spring. Wimmera and Western District crops are generally in good condition but, as usual, spring rainfall will be a critical factor. Southern Victoria has received heavier rainfall in the past month, however East Gippsland has been missing out.”

Mr Bennett said dairying regions in particular looked to be in good shape with fodder reserves on hand and continuing high milk prices.

In all farming systems in all regions, he said, input costs continue to present a significant constraint on profitability and forward sentiment.

“The effect of higher input costs, coupled with the rise in interest rates over the past 12 months, has made it a challenge for many farmers to invest back into their businesses, especially where they have also been challenged by a poor season,” he said.

Mr Bennett said Northern Victorian irrigators were continuing to be impacted by low water allocations.

“Northern irrigation systems have opened the season with zero water allocation as expected. With winter behind us, ultimate seasonal allocations now rely heavily on spring rainfall and inflows,” he said.

Of those Victorian farmers surveyed who expected conditions to improve over the next 12 months, 65 per cent cited seasonal conditions as a major contributing factor. Increasing commodity prices were also “top of mind”, mentioned by 39 per cent of respondents.

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.

Rising input costs – particularly fuel and fertiliser – were found to be the main inhibitor of confidence among Victorian farmers, with 73 per cent of producers who expected conditions to worsen over the next 12 months nominating this as a contributing factor , up from 51 per cent last quarter.

Consistent with the decrease in headline confidence, investment intentions also weakened, albeit marginally, with 35 per cent of respondents expecting to increase investment in their farm businesses in the next 12 months, down from 39 per cent in the previous quarter. Encouragingly however, Mr Bennett said, just nine per cent of respondents indicated an intention to decrease their levels of investment.

The survey showed Victorian farmers’ income expectations had also declined, with 42 per cent of respondents expecting their gross farm income to improve in the next 12 months, down from the previous quarter when 48 per cent anticipated higher incomes. The decline in income expectations comes after a relatively strong financial year for gross farm incomes in 2007/2008. A total of 51 per cent of Victorian producers reported higher gross farm incomes in the last financial year, with 29 per cent reporting lower incomes.

The latest survey found that a shift in the mix of agricultural production could be expected over the next 18 months in Victoria, with 39 per cent of the state’s farmers indicating an intention to change their enterprise mix. Net increases in dairy, grain and prime lamb production are forecast, while sheep/wool production looks set for the biggest downward shift.

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 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

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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