Australian Farmer Confidence Remains Subdued

Australian Farmer Confidence Remains Subdued.

Results at a glance:

* Australian farmer confidence has again eased in the last quarter.

* High input costs-along with concerns about international markets and ongoing dry conditions -had the biggest impact on confidence levels.

* Despite concerns about international markets, the majority of farmers say they have yet to be impacted by the global credit crisis.

* Sentiment improved among beef and sugar producers, but weakened in other sectors.

* In line with the easing of headline confidence, investment intentions have also moderated.

Confidence levels remain subdued among the nations farmers, with difficult global market conditions adding to concerns about high input prices and ongoing dry weather in some areas.

The latest Rabobank Rural Confidence Survey has shown the third successive quarterly decline in Australian farmer sentiment.

The survey found 39 per cent of farmers expect the agricultural economy to worsen over the next 12 months, up from 36 per cent with that view in the previous quarter. The number of farmers expecting conditions to improve in the coming year decreased to 23 per cent, compared with 28 per cent last survey.

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.

Rabobank general manager Rural Australia, Peter Knoblanche, said the latest survey V undertaken a month ago V showed farmers were remaining cautious despite an improvement in seasonal conditions across much of the country.

Although relatively slight, the decline in confidence witnessed this quarter was not surprising, he said, given difficult global markets and the fall in world prices for key commodities such as grain, oil seeds, wool, dairy and cotton.
Uncertainty in international markets has adversely impacted commodity prices. The weakening dollar has provided some insulation, however not enough to offset the depreciation we are seeing. Also locally, production has been encouraging so we are seeing a further dampening effect on commodity prices driven by local supply, he said.

The ongoing negative impact of high farm input prices and a spring that, while considered average to above-average in many areas, had failed to meet the
expectation of some producers, had also weighed down farmer sentiment, Mr Knoblanche said.

"Although oil prices have continued to moderate over the past couple of months, the weakening Australian dollar has had a negative impact on the domestic price of imported farm inputs, such as fertiliser and chemicals, which are for the most part imported as either raw ingredients or processed products," he said.

"On top of this, farmers are still contending with high-priced inventory stock carried by some suppliers. In 2007 and early 2008, when global supply conditions for farm inputs were quite tight, many suppliers made forward purchases at high price levels in order to safeguard domestic supplies. They now have to run down these higher priced inventories before the major gains from falling international input prices will be felt locally."

Of those primary producers surveyed who expected conditions to worsen over the next 12 months, 41 per cent nominated input costs as a major contributing factor, although this was down from 73 per cent in the previous quarter. The drought was also .top of mind. for many farmers, while concerns regarding overseas markets and falling commodity prices were also prominent, cited respectively by 23 per cent and 21 per cent.

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 V as indicated by the Reserve Bank of Australia's Rural Commodity Index V 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.

Despite lingering worries about the drought, Mr Knoblanche said Australia remains on track for a much improved agricultural season this year compared to 2007.

"With the exception of south western New South Wales, northern Victoria, southern Tasmania and some cropping regions of South Australia, rainfall and seasonal conditions have generally been favourable this spring, he said. Harvests across the major grain belts of Queensland, Western Australia and New South Wales should be average to above- average, whilst pasture growth is generally healthy."

Optimism about seasonal conditions was found to be the primary reason cited by those farmers in the survey who did expect conditions to improve, with 53 per cent believing seasonal conditions would be more favourable over the next 12 months. The decreasing Australian dollar was also .top of mind., cited by 26 per cent of respondents.

Investment and income

The latest Rabobank survey showed that, consistent with the decrease in headline confidence, farmers were also less inclined to invest in their businesses.

However, despite moderating, investment intentions remain at a positive level, with more producers (23 per cent) still expecting to increase their level of investment in their farm businesses over the next 12 months than those expecting to reduce investment (14 per cent).

Dairy and grain producers were found to be the most likely to increase their investment. Farmers in both sectors are looking to invest primarily in working capital, whilst many in dairy are considering expansion via property purchase.
Overall, 32 per cent of respondents still expected to have higher incomes over the next 12 months, up from 20 per cent with that expectation in the previous survey. The number of producers expecting lower gross farm incomes decreased to 24 per cent, compared to 26 per cent in the previous quarter.

States

The survey found rural confidence was sharply lower in the southern states, with Victoria, South Australia and Tasmania all recording significant drops in confidence.

Mr Knoblanche said the situation was similar in all these states, where concerns about spring rainfall had been compounded by falling commodity prices and high input costs.

"South Australia had excellent rains in July and August, however most of spring was very poor. Many cropping regions were reporting their worst spring rains on record. Although there have been heavy rains in recent weeks, these have come too late for croppers and in some areas have even been detrimental to harvests," he said.

The fall in Victorian sentiment has seen confidence levels in that state return to negative territory, with more farmers expecting the agricultural economy to worsen rather than improve.

"The result in Victoria is being driven by conditions in the north of the state, Mr Knoblanche said. Winter crop yields are expected to be generally well below average and in some places have completely failed. For most Victorian districts, rainfall was very low for the September and October period. Dairy farmers have good fodder reserves held over which will help, however feedback from the field suggests many are concerned about the prospect of a long hot summer.

Sentiment in Queensland has improved, while conditions in NSW were generally among the most favourable in the country over spring as a result of sustained widespread rain across much of the state, though with the exception of south western NSW.

Conditions in Western Australia have been generally favourable, however significant parts of the wheat belt have been affected by frost and dry conditions. Although rural sentiment has improved in Western Australia, the overall level remains low, the survey showed.

Sectors

Sentiment was stronger among beef and sugar producers, however weaker across all other agricultural sectors this survey, with the biggest decreases observed among sheep, dairy and cotton producers.

Mr Knoblanche said the increase in beef producer confidence comes at a time when prices are bucking the general commodity trend and firming. Northern cattle producers have been buoyed by strengthening prices for both slaughter and stores over the last month. Increasing demand for boat trade cattle has taken prices to a new level in North Queensland and the Northern Territory, Mr Knoblanche said.

Sugar remains one of the more pessimistic sectors, however sentiment has strengthened due to an improvement in the cane price. Recent falls in world prices have been balanced by the depreciation of the Australian dollar, so improvements that were realised in October have mostly been held over the last month, Mr Knoblanche noted.

Across all other sectors, the dual forces of high input prices and weakening commodity prices are constraining sentiment, the survey showed.

Impact of global credit crisis

While concerns about international market conditions are weighing on farmers. minds, the latest survey found most (69 per cent) felt their businesses had not yet been impacted by the global credit crisis.

Grain growers and cotton producers were the most impacted, with .lower commodity prices. the most common effect experienced. Other common impacts listed by agricultural 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 an average of 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 worlds 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 Moodys 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]

Elise MacDonald
Public Relations Consultant
Rabobank Australia & New Zealand
Phone: 02 8115 4861
Email:[email protected]

SOURCE: Rabobank