Australian Farmer Confidence Gathers Momentum On Back Of Winter Rain

Australian Farmer Confidence Gathers Momentum on Back of Winter Rain

Media Release

August 31, 2009

Results at a glance:

* Australian farmer confidence has improved for the second successive quarter, reaching a positive level for the first time since June 2008.

* A brighter outlook for seasonal conditions was the biggest driver of positive sentiment. However, further rainfall is required for a good finish to the season in some areas.

* Confidence improved in all states and among almost all sectors, weakening only in the dairy sector.

* More than 50 per cent of farmers who required additional labour over the past 12 months had experienced difficulties in finding it.

Australian farmer confidence has risen for the second successive quarter, buoyed by promising early winter rainfall, the latest quarterly Rabobank Rural Confidence Survey has shown.

The rural confidence index is now in positive territory, with more farmers expecting economic conditions to improve than those expecting conditions to decline. However, Rabobank general manager Rural Australia Peter Knoblanche cautioned that sentiment would deteriorate if further widespread rain was not forthcoming in the near future.

The latest survey undertaken a month ago found 28 per cent of farmers expected conditions to improve in the coming year, up from 20 per cent last quarter. The number of farmers expecting conditions to worsen decreased to 25 per cent, down from 37 per cent, and 48 per cent just six months previous.

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 good seasonal conditions in many parts of the country in early winter had seen rural confidence hit a net positive level for the first time in more than a year.

"When we look at those sectors and areas that are driving the improved result, it is the cropping regions of WA and SA where sentiment is strongest," he said.

"Producers are now eagerly awaiting more rain to finish off what is shaping up as a good winter cropping season for many areas," he said.

The survey showed positive seasonal conditions to be the major reason for increased optimism among farmers.

Of those primary producers surveyed who expected conditions to improve over the next 12 months, 48 per cent cited improved seasonal conditions. as a major contributing factor.

"Viewed in the context of recent years, seasonal conditions have generally been favourable for all states," Mr Knoblanche said. "Rainfall has tended to be widespread and characterised by a relatively continuous. pattern rather than isolated storm events. This has resulted in less run-off which, though not benefitting dam levels greatly has resulted in improved soil moisture profiles. This has sustained most crops over the winter months and provided much welcomed feed for graziers."

Despite the overall improvement in sentiment, Mr Knoblanche said farmer confidence was continuing to be tempered by concerns about global economic conditions and the potential impact of a developing El Nino event.

"Due in part to weaker international demand, we have seen a continued softening in prices for some key commodities, particularly wheat, although prices remain at above average levels," he said.

Weaker commodity prices were the main concern for those primary producers expecting conditions to worsen cited by 48 per cent, up from 35 per cent the previous quarter. Overseas markets/economies were also cited as a concern by 28 per cent.

Despite the improvement to the global economic outlook, the performance of key agricultural commodity prices remains mixed. For example, wheat prices have declined by 30 per cent since their June 2009 peak, while at the same time sugar prices have risen sharply to above US 20 cents a pound. Notwithstanding the commodity price movements, a significant challenge for Australia.s commodity exports has been the recent strength of the Australian dollar.

Mr Knoblanche said while rainfall in most regions over the winter months has been favourable in the main, there was definite concern among farmers about the anticipated return of an El Nino event.

"This has led to some caution among producers and tempered what would otherwise have been even more positive confidence levels. A close watch will be kept on the Southern Oscillation Index as spring approaches, particularly by those on the east coast and producers operating within the Murray Darling basin," he said.

However, Mr Knoblanche noted, for many winter crop producers, the amount of rain needed to finish the crop was only modest and may be achieved despite possible generally dryer conditions.

Input prices figured as less of a concern for farmers, reflecting the relatively low prevailing prices for fertiliser and chemicals, some of which are now at 2006/07 levels. Just 26 per cent of farmers in the survey cited input prices as a concern, however this was up on the 14 per cent worried about input prices in the previous quarter.

Mr Knoblanche said recent increases in the price of oil, which went to levels above USD70 a barrel, had likely contributed to this increase. "Another contributing factor is likely to be the impact of falling commodity prices. Analysis shows that producers often become more sensitive to input costs at times when commodity prices are at lower levels."

Farm business performance and investment

In terms of farmers. own businesses, the Rabobank survey found 35 per cent of respondents expected to see improved performance over the next 12 months. This figure was up on the previous quarter and also significantly higher than farmers. expectations of the overall agricultural economy.

Mr Knoblanche said the variance between these two measures indicated an underlying confidence, with farmers feeling more positive about their own situation than that of the agricultural economy as a whole.

The survey also showed an improvement in farmers. investment intentions for the second successive quarter, with 89 per cent intending to maintain or increase the level of investment in their business. Just 10 per cent expected to reduce their investment.

Sugar and cotton producers were found to be the most likely to increase their investment in their farm businesses.

States

The survey found rural sentiment had strengthened in all states, with South Australia and Western Australia recording the most significant improvements in confidence.

Mr Knoblanche said the situation was similar in both these states with sentiment driven by favourable winter rain that tended to be at an average to above-average level for most regions.

"Rain in July and August has consolidated the good start experienced by grain producers in these states," he said.

"Crops are well advanced in South Australia in particular, however, despite good levels of sub-soil moisture, September rains will still be vital to guarantee an above average season. A late start to planting in Western Australia will expose the state.s grain growers to the risk of a dry finish which could see yields affected."

The eastern states have also benefited from winter rains, with Tasmania receiving falls significant enough to put an end to the drought which had prevailed in some areas of the south east for many years.

"The above-average rains in Tasmania have many producers gearing up for a big spring, however dairy producers will continue to be impacted by low prices," Mr Knoblanche said.

In Queensland, sentiment is highest amongst the state.s sugar producers. The world price for sugar remains high, although recent gains by the Australian dollar will impact local prices and profitability.

Sectors

Sentiment was stronger within all sectors, with the exception of dairy, which experienced some deterioration in confidence.

Mr Knoblanche said the fall in dairy farmer confidence was primarily attributable to declining optimism in dairying regions which have an export focus, with weak offshore markets and a strong Australian dollar forcing export processors to set low opening prices for the 2009/10 season in July. "This more than offset the benefits of a promising start to the season in many regions and some cost relief from falling grain and fertiliser prices," he said.

Mr Knoblanche said confidence among sugar producers had reached its highest level since June 2006.

"If we see a further improvement in sugar producer confidence next quarter, it will be the highest level reached in the history of the survey," he said. "Conditions have been favourable for cane growth over the winter months, however it is the sugar price that has been the major contributor to the high confidence levels."

Prices have been driven by a reduction in world supply, with major producer India moving from a net exporter of sugar to a net importer. "Local producers have capitalised on the situation, with many entering forward contracts with a very favourable average forecast price of $400 per tonne," he said.

Mr Knoblanche said the increase in confidence in the other sectors came despite the lack of significant improvement in commodity prices.

"Sentiment has been driven mostly by an expected increase in production capacity due to favourable seasonal conditions," he said.

Sheep producers have seen a continued rise in confidence, supported by improved rainfall in many sheep areas, record prices for sheep and near-record prices for lambs. Significant liquidation of sheep flocks over recent years has resulted in reduced supply, both in Australia and overseas. This has supported higher farm gate prices despite the continuing impact of the global economic downturn on demand. While confidence has improved the prospect of a deterioration weather conditions remains a concern.

Confidence in the cattle sector has also improved, but remains at low levels. Prices
for cattle recovered from their February low-point, but remain pressured due to
subdued consumer demand and the impact of the rising Australian dollar on exports.

Farm labour

The latest Rabobank survey also found that farm businesses were still experiencing
difficulties in attracting labour. Of the farmers who required additional labour over the
last 12 months, six per cent described the experience of attracting labour as
'impossible'. A further 55 per cent indicated that they had experienced some difficulty
in attracting adequate labour.

Despite the finding that difficulties remain, farm businesses are having less trouble
attracting farm labour compared to two years ago (when this question was last
asked). This was particularly the case in WA, Mr Knoblanche said, where farm
business operators had been struggling to compete with the mining industry for a
limited supply of labour. In October 2007, 14 per cent of WA farm businesses, who
required additional labour, described the experience as impossible. and a further 62
per cent had experienced some difficulty in attracting adequate labour. This quarter,
the corresponding measures had reduced to two per cent and 37 per cent.


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 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 45 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.

ends

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