Limited Autumn Rain And High Input Costs See Drop In Farmer Confidence

Limited Autumn Rain and High Input Costs See Drop in Farmer Confidence

Results at a Glance:

* Australian farmer confidence has eased this quarter, but remains at a positive level.

* Rising input costs along with concerns about drought had the biggest impact on confidence levels.

* Grain growers, particularly those in Western Australia, were found to be the most confident this quarter, with 54 per cent expecting conditions to improve.

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

* Of those farmers who believe they may have a future need for succession planning, just 12 per cent have a formal succession plan documented and in place.

Limited autumn rainfall and high input prices have seen Australian rural confidence subside from previous highs earlier in the year, although farmer confidence remains at a positive level, according to the latest quarterly Rabobank Rural Confidence Survey.

The survey found 38 per cent of farmers expect the agricultural economy to improve over the next 12 months, down from 52 per cent with that view in the previous quarter. A total of 22 per cent expect the agricultural economy to worsen, compared with 15 per cent last survey.

A definitive 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 survey undertaken a month ago had shown a general abatement in farmer confidence as a result of inconsistent autumn rainfall and concern that, without significant winter rain, producers may be unable to leverage good commodity prices that continue to be enjoyed by dairy, grain and oilseed producers in particular.

"Following the relatively wet summer, weather conditions have been generally a lot drier over the past three months with only pockets of the country experiencing ideal conditions during most of autumn," he said. "Cautious optimism appears to be the prevailing sentiment, however it is encouraging to observe the grain belts of Western Australia have experienced a positive combination of factors for the start of the season, particularly in the north where summer rainfall, combined with recent follow-up rain and high wheat prices, has seen sentiment hit near-record highs."

Mr Knoblanche said farmers were still relying on decent follow-up rain through winter, which was going to be essential for them to have a reasonable season and to impact on confidence levels in the longer term.

He said irrigators particularly those producers in the Murray Darling basin were still suffering from very low storage levels and low water allocations.

"While significant rain had fallen within irrigation catchments through the summer months, falls since then have been of a relatively light intensity in most areas and have not resulted in big inflows to major storages," he said.

Mr Knoblanche said while farmer confidence had eased, it still remained at positive levels, with more farmers expecting economic conditions to improve than those expecting them to deteriorate.

He said that despite disappointing autumn rainfall to date and high farm input prices, farmer confidence was continuing to be buoyed by good commodity prices and an expectation of favourable seasonal conditions ahead.

The Rabobank Rural Confidence Survey showed an expectation of more favourable seasonal conditions was the main driver behind farmer confidence this survey. Of those primary producers who expected conditions to improve over the next 12 months, 62 per cent nominated seasonal conditions as a major contributing factor. Commodity prices were also 'top of mind', cited by 47 per cent of respondents.

While global agricultural prices remain at high levels for most commodities in historical terms, there has been a significant pull back in prices from the extreme highs reached in March. World wheat prices have been most affected, falling by 40 per cent since March, with world sugar and cotton prices falling 28 per cent and 24 per cent respectively over the same period. Australian rural commodity prices, as reflected by the Reserve Bank of Australia's Commodity Index, are shown to have fallen by around eight per cent in April, month-onmonth.

The survey found that rising input costs were the main concern for those farmers who had reduced confidence levels. Of those primary producers who expected conditions to decline over the next 12 months, 58 per cent nominated rising input costs as a major contributing factor. The drought and strong Australian dollar were also 'top of mind', cited by 39 per cent and 16 per cent of respondents respectively.

Income and Investment

The latest survey showed that, consistent with the decrease in headline confidence, farmers' income expectations and investment intentions had also decreased.

Overall, 48 per cent of respondents expected to have higher incomes over the next 12 months, down from 56 per cent with that expectation in the previous survey. The number of producers expecting lower gross farm incomes increased slightly to 13 per cent, compared to 11 per cent last quarter.

The decline in income expectations comes after a relatively strong first quarter for gross farm incomes in 2008. A total of 45 per cent of Australian producers reported higher gross farm incomes in the first quarter of 2008 compared to the same period last year, with 24 per cent reporting lower incomes.

Despite moderating, investment intentions have continued their upward trend of the past 15 months, with more producers (32 per cent) expecting to increase their level of investment over the next 12 months than those expecting to reduce their investment (eight per cent).

Grain growers were found to be the most likely to increase their investment, while dairy producers' investment intentions remain at a high level, with farmers in both sectors looking to take advantage of strong commodity prices.

States

With the exception of Western Australia and Tasmania, the Rabobank survey found rural confidence was weaker in all states, with the largest decreases observed in New South Wales, Victoria and Queensland.

Mr Knoblanche said the circumstances were similar in these states, with sentiment hindered by low autumn rainfall and high input costs. Queensland returned the lowest confidence measure, with just 28 per cent of producers expecting conditions to improve.

"The benefits of favourable summer rain across much of Queensland are beginning to dissipate, with many cropping areas very much in need of planting rain for this year's winter crop. Cattle and sugar producers have been disadvantaged by disappointing commodity prices, compounded by rising prices for key inputs such as fuel, fertiliser and wages," he said.

Despite a slight improvement in confidence in Tasmania, sentiment remains at a negative level (with more producers expecting conditions to worsen than those expecting an improvement). Negative sentiment is being driven by producers in the south of the state who are still facing very dry conditions.

Conversely, producers in Western Australia are setting themselves for a big season on the back of widespread season opening rain throughout the state.

"Though pockets of the state are still dry, particularly east of Merredin and the Esperance region, the general feeling is that the start to the season, to date, has been the best experienced for many years," Mr Knoblanche said.

Sectors

Sentiment was weaker across all agricultural sectors this survey, with the biggest decreases observed among beef and sugar producers.

All sectors continued to report rising input costs as a significant concern.

"Although no one wants the additional difficulties and risks associated with increased input costs such as fertiliser, fuel and chemicals, most farmers should continue to be able to manage them because of the strong prices most commodities are able to command," Mr Knoblanche said. "However, this is contingent on positive seasonal conditions in order to achieve good production, and also of course on commodity prices remaining at high levels."

Input costs were found to be the biggest driver of negative sentiment amongst sugar cane producers.

Mr Knoblanche said the sugar industry has been unfortunate to also be adversely affected by low world prices and a strong Australian dollar that is unfavourable for exporters.

Although confidence was down a little among grain producers, their investment intentions had remained steady and both measures were at strong levels.

Mr Knoblanche said good grain prices were expected to see a continuing bias towards grain in the type and ratio of outputs produced by mixed farming operations this season.

Succession Planning

The latest Rabobank Rural Confidence Survey also found that while farm succession loomed as a significant concern for Australian farmers, succession planning was not something most had formally undertaken.

Of those farmers who believe they may have a future need for succession planning, 54 per cent had taken some steps to put a plan in place (such as talked with family or sought professional advice), but only 12 per cent had a formal succession plan documented.

No strong differences were seen by sector or by state, though it was noted that farmers operating larger businesses (with turnover greater than $1 million a year) were significantly more likely to have a succession plan in place (30 per cent compared to 12 per cent of farmers overall).

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 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 100 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.



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
Phone: 02 8115 2744 or 0439 603 525
Email: [email protected]

SOURCE: Rabobank