Upturn In Farmer Confidence As Country Looks To Positive 2009 Season

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1st June 2009, 12:21pm - Views: 955
Upturn in Farmer Confidence as Country Looks to Positive 2009 Season

Results at a glance:
* Australian farmer confidence has improved in the last quarter, though remains at a negative level.
* A brighter outlook for seasonal conditions was the biggest driver of positive sentiment.
* Confidence improved among beef, sheep and dairy producers, but weakened in the grain and cropping sectors.
* 51% of farmers believe that they have been impacted by the global economic crisis, up from 31% with that view six months ago.

Australian farmers have shown the first improvement in confidence levels in more than a year, according to the latest quarterly Rabobank Rural Confidence Survey.

Although still at relatively low levels, farmer sentiment has rallied, following four successive quarterly declines.

Rabobank general manager Rural Australia Peter Knoblanche said an overall positive start to the season, coupled with the comparatively good performance of the farm sector compared to the rest of the economy, was giving farmers a relatively brighter outlook.

"The best way to describe the mood of many of the nation.s farmers at the moment is one of cautious optimism," he said.

The rally in confidence had occurred despite concerns voiced by many farmers regarding global market conditions, softening commodity prices and ongoing dry conditions in some parts of the country.

The survey - undertaken a month ago - found 20 per cent of farmers expect conditions to improve in the coming year, up from 16 per cent last quarter. The number of farmers expecting conditions to worsen decreased to 37 per cent, down from 48 per cent previously.

A comprehensive monitor of outlook and sentiment in Australian rural industries, the Rabobank Rural Confidence Survey questions approximately 1200 farmers across a wide range of commodities and geographical areas throughout Australia on a quarterly basis.

Mr Knoblanche said the latest survey showed farmer sentiment was continuing to be impacted by concerns about the global economy, but that the agricultural sector was proving to be resilient to the financial crisis, particularly in comparison to other major Australian industries.

He said the underlying supply and demand fundamentals in agriculture remained favourable.

"We have seen a softening in prices for some key commodities, including wheat, however, compared with many other industries, farming is in a relatively good position," he said. "Some sectors though have been more affected than others with dairy and wine in particular struggling after some big price drops as consumers in key export markets cut back their discretionary spending. And, in the case of dairy, supply has been slow to adjust."

Positive seasonal conditions were a major reason for increased optimism among farmers.

Of those primary producers surveyed who expected conditions to improve over the next 12 months, 44 per cent cited improved seasonal conditions. as a major contributing factor.

"Seasonal conditions have, for the most part, been favourable with large areas of the eastern and southern states receiving good falls of rain over the Easter period and later around the ANZAC Day weekend and again in May. This should result in further improvements in sentiment over the coming months, provided follow up rain is received," Mr Knoblanche said.

Global market issues were still the main concern for those primary producers expecting conditions to worsen 44 per cent nominating 'overseas markets/economies' as a major reason for their declining sentiment. However, this was down from 58 per cent with that concern in the previous quarter. Falling commodity prices were also 'top of mind', cited by 35 per cent of farmers.

While many commodity prices remain well below last-year highs, grains and fibres have all edged higher in recent months (in US dollar terms), buoyed by a combination of production downgrades (Argentina), strong Chinese imports (soybeans), US planting delays (corn and spring wheat) and tight stock levels. These increases, however, have been muted somewhat by the appreciation of the Australian dollar.

Reflecting the relatively low prevailing prices for fertiliser, chemicals and fuel, just 14 per cent of farmers in the survey cited input prices as a concern, down from 16 per cent last quarter and 41 and 73 per cent the quarters before that.

Farm business performance, income and investment
In terms of farmers' own businesses, the Rabobank survey found 27 per cent of respondents expected to see improved performance over the next 12 months. This figure was up on the previous quarter and higher than farmers' expectations of the overall agricultural economy.

"The variance we continue to see between these two measures indicates an ongoing underlying confidence, as farmers feel more positive about their own situation than that of the agricultural economy as a whole," Mr Knoblanche said.

Farmer incomes over the previous three months were found, overall, to be lower than those received over the same period a year earlier, with 40 per cent reporting lower incomes and 31 per cent higher.

The survey did show, however, an improvement in farmers. investment intentions, with 84 per cent now intending to maintain or increase the level of investment in their business. Investment intentions have now climbed to a positive level, with more producers (19 per cent) expecting to increase their level of investment than those expecting to reduce investment (15 per cent) over the next 12 months.

Grain, beef and sugar producers were found to be the most likely to increase their investment.

Mr Knoblanche said farmers in these sectors were looking to take advantage of relatively favourable seasonal conditions. "Most cereal-producing areas have received enough autumn rain to sow a crop so this will fuel investment. Beef producers, particularly in Queensland, may be undertaking re-stocking activity to take advantage of good pasture growth. And in the case of sugar, a lot of producers will be looking to invest to leverage the positive international outlook for this commodity," he said.

The survey found rural sentiment had strengthened in all states, with Queensland, Victoria and Tasmania recording the most significant improvements in confidence.

Mr Knoblanche said the eastern states of Australia had received much-needed autumn rain.

The Monaro and Riverina regions of New South Wales, along with the major cropping regions of Victoria, received a very timely autumn break with rains of 20mm to 40mm falling over the ANZAC day weekend. Though this hasn't filled the soil profile, it has been enough to support sowing and has provided a good start to the winter season," he said.

"The north of Tasmania has also benefited from good falls in late April which have provided ideal conditions for dairy producers. Less rain has been received in the Midlands and further south, however overall the foundations appear to be in place for a good season."

Mr Knoblanche said while producers in low-lying areas of northern NSW and Queensland were still recovering from flood damage, sentiment in Queensland had spiked following timely autumn rain in the south.

"Confidence also remains strong among the state.s sugar producers, with the world price for sugar holding firm. Although recent gains by the Australian dollar will impact local prices and profitability," he said.

Despite improvement in confidence in South Australia and Western Australia, sentiment remains at a negative level in these states (with more producers expecting conditions to worsen than those expecting an improvement).

"Western Australia suffered a particularly dry autumn, the driest on record. Fortunately a late autumn break has since been received in many parts of the state in the latter parts of May, allowing for planting in most of the major regions," Mr Knoblanche said.

Sentiment was stronger among livestock farmers with beef, sheep and dairy producers all recording gains.

Mr Knoblanche said, while lamb and sheep prices were buoyant, the increase in confidence in the other livestock sectors came despite the lack of significant improvement in commodity prices.

"There look to be two factors at play here though. Sentiment among livestock producers was at almost record lows last quarter so the improvements are coming off a very low base. Added to this, autumn rain will improve the production capacity of livestock producers and profitability will be driven more by increased production than by higher commodity prices," he said.

Milk producers, in particular, continue to face low prices, however recent improvement in seasonal conditions, along with favourable long-term contract positions, have protected many in the industry.

"Fortunately the milk price appears to have reached a base and a number of producers have long-term contracts which have buffered them against much of the milk price decline," Mr Knoblanche said.

Across all other sectors, the dual forces of uncertain international markets and already realised lower commodity prices are constraining sentiment, the survey showed.

Impact of global economic crisis
The survey also found that 51 per cent of farmers believed they had been impacted by the global economic crisis, up from 31 per cent with that view six months ago.

Grain growers and dairy producers were the most affected, with 'lower commodity prices' the most common impact experienced. Other impacts noted by agricultural producers included more difficult economic conditions and decreased interest rates.

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 August 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 is structured as a cooperative and has a AAA credit rating from Moody's and Standard & Poor's. Rabobank operates in 43 countries, servicing the needs of more than nine million clients worldwide through a network of more than 1600 offices and branches. Rabobank Australia is one of the country'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 51 branches throughout Australia.

To arrange an interview with Rabobank general manager Rural Australia Peter
Knoblanche, or for more information on Rabobank's Rural Confidence Survey,
please contact:

Denise Shaw
Public Relations Manager
Rabobank Australia & New Zealand
Phone: 02 8115 2744 or 0439 603 525
Email:[email protected]

Kelly Lund
Public Relations
Rabobank Australia & New Zealand
Phone: 02 8115 4861
Email:[email protected]

SOURCE: Rabobank

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