A survey taken in June and July showed Australian rural confidence had rebounded dramatically as promising early winter rainfall and record commodity prices fuelled farmer optimism, though the Western Australian increase was only marginal.
A survey taken in June and July showed Australian rural confidence had rebounded dramatically as promising early winter rainfall and record commodity prices fuelled farmer optimism, though the Western Australian increase was only marginal.
The latest quarterly Rabobank Rural Confidence Survey, released today, showed a continuing improvement in confidence in Western Australia, though the increase was marginal compared with other states.
Despite some good July rain in WA's agricultural areas, state yield expectations are still below the long-term average, although above that experienced last season. Pasture remains tight in most regions along with on-farm water storage.
Across the nation, expectations of a return to more favourable seasonal conditions - along with strengthening commodity prices - had the biggest impact on farmer confidence this quarter.
The full text of a Rabobank announcement is pasted below
Results at a Glance:
- Rural confidence has rebounded strongly in Australia, following an easing last quarter.
- Expectations of a return to more favourable seasonal conditions - along with strengthening commodity prices - had the biggest impact on farmer confidence this quarter.
- Sentiment has strengthened in all states and all sectors, though remains weak amongst the nation's sugar producers.
- Income expectations and investment intentions have also increased.
Australian rural confidence has rebounded dramatically as promising early winter rainfall and record commodity prices have fuelled farmer optimism, according to the latest quarterly Rabobank Rural Confidence Survey.
The increase has seen farmer confidence hit levels not seen since 2001, however it is expected that sentiment will deteriorate if further widespread rain is not forthcoming over the next month.
The Rabobank Rural Confidence Survey - which surveys more than 2000 primary producers across a wide range of commodities and geographical areas throughout Australia - shows farmer confidence has continued its recovery since hitting an all-time low just nine months ago, when much of the country struggled in the grip of drought.
The latest survey, taken in June and July this year, has found 58 per cent of farmers expect the agricultural economy to improve over the next 12 months, well up from 31 per cent in the previous survey. Only 16 per cent expect the agricultural economy to decline over the next 12 months, compared with 37 per cent last quarter.
Rabobank general manager Rural Australia Peter Knoblanche said the survey had seen a general lift in farmer confidence as a result of early winter rains, with the biggest increases among those sectors also enjoying high commodity prices, such as dairy, grains and mixed sheep/grains.
"Good late autumn and early winter rainfall which fell across New South Wales, Victoria and South Australia and parts of Queensland, Tasmania and southern Western Australia provided a real boost for farmers in these areas.
This rain came at an ideal time for planting of grain crops, although was late to have a significant impact on pasture growth," he said.
However, Mr Knoblanche said, there had been disappointingly little follow up rain in many parts of the country since.
"Many farmers are still anxiously awaiting follow-up rain over the coming weeks to maintain crops. And further rain will be required to maximise production and leverage favourable commodity markets," he said.
Rural commodity prices have rebounded over the past quarter, buoyed by record high global wheat and dairy prices.
In US dollar terms, Australian commodity prices reached record levels in July, despite relatively weak sugar prices and easing cattle prices. A significant decrease in the Australian dollar in early August from recent 15-year highs will provide additional support to Australian rural commodity exporters.
Mr Knoblanche said the strong rebound in farmer confidence had come off a relatively low base in the previous survey, and should not be mistaken as a sign that Australian farmers had recovered from drought.
"Of greatest concern is the dramatically low levels of storage water for irrigation and the gap is rapidly closing on the period where irrigators commence plantings," he said.
The latest Rabobank Rural Confidence Survey showed, not surprisingly, that an expectation of more favourable seasonal conditions was the main driver behind increased farmer confidence this survey. Of those primary producers who expected conditions to improve over the next 12 months, 77 per cent nominated seasonal conditions as a major contributing factor, whilst increasing commodity prices were also "top of mind", cited by 31 per cent of respondents.
The high Australian dollar was the principal concern among farmers. Of those farmers expecting conditions to worsen over the next 12 months, 42 per cent gave currency as the reason.
Incomes and Investment
Consistent with the increase in headline confidence, farmers' income expectations and investment intentions have also increased.
Overall, 53 per cent of respondents expected to have higher incomes over the next 12 months, compared with 32 per cent with that expectation in the previous survey. The number of producers expecting lower gross farm incomes decreased to 17 per cent, compared to 33 per cent last quarter.
The improvement in income expectations comes after a generally poor year for gross farm incomes in the 2006/07 financial year. A total of 59 per cent of Australian producers reported lower gross farm incomes in 2006/07 compared to the previous year, with only 22 per cent reporting higher incomes.
Investment intentions are also at positive levels, with more producers (33 per cent) expecting to increase their level of investment over the next 12 months than those expecting to reduce their investment (eight per cent).
For the second quarter in a row, dairy producers were found to be the most likely to increase their investment. Mr Knoblanche said dairy producers were undoubtedly looking to take advantage of strong milk prices which are up 35 to 40 per cent on last year.
States
The latest Rabobank survey found rural confidence was stronger in all states, with the largest increases observed in Victoria, New South Wales and South Australia.
Mr Knoblanche said the situation was similar in all these states with sentiment driven by solid early winter rainfall and a positive commodity price outlook.
The survey showed continuing improvement in confidence in Western Australia, though the increase was marginal compared with other states. Despite some good July rain in WA's agricultural areas, state yield expectations are still below the long-term average, although above that experienced last season. Pasture remains tight in most regions along with on-farm water storage.
Confidence has strengthened in Queensland and is now at a positive level (with more farmers expecting economic conditions to improve than deteriorate). This is primarily due to improved sentiment among the state's grain farmers.
"The stronger sentiment in Queensland is being underpinned to some extent by the confidence among the state's grain and also cotton producers, which is a shift from results observed 12 months ago when optimism among sugar producers was buoying the state's results," Mr Knoblanche explained.
Sectors
Sentiment was significantly stronger across all sectors with the exception of sugar, with marked increases observed among dairy, cereal and sheep producers.
Grain, sheep meat and particularly dairy producers have been buoyed by recent improvement in commodity prices and most have been encouraged by the much-needed rain over May and June.
"Grain prices have been boosted by the tight global inventory and strong demand. Australia is in an excellent position to take advantage of these markets if we get a good finish to the season," Mr Knoblanche said.
He said irrigators - particularly those producers involved in cotton, dairy and horticulture - were still affected by very low water storage levels and, as a consequence, significantly reduced water allocations.
However, dairy producers appeared to be "jubilant" as a result of strong dairy prices.
"Although some are finding profitability impacted by limited water allocations and high feed costs," he said.
Confidence increased among sheep producers, a reflection of improved seasonal conditions following rainfall in late autumn and early winter.
Heightened confidence in the beef sector had been led by the producers in the southern states, encouraged by improved seasonal conditions at the beginning of winter. However, confidence levels were not as strong among Queensland cattle farmers, with sentiment impacted by the high Australian dollar, dry conditions in southern Queensland, an easing in cattle prices and subdued demand from North Asia.
Despite being concerned by lack of water availability, cotton producers also registered an increase in confidence, buoyed by some improvement in prices.
Mr Knoblanche said the subdued confidence among sugar producers comes at a time when the industry is concerned about the high currency, seasonal conditions are relatively unfavourable and land prices are coming off their peak levels despite some interest by southern buyers looking to grow alternate crops, replacing cane with grain and pulses.
"However, the fall in the international prices is continuing to have the biggest negative impact on sentiment among sugar producers. 'Falling commodity prices' was the main reason given by sugar producers who expect conditions to worsen over the next 12 months," he said.
The quarterly Rabobank Rural Confidence Survey is a definitive monitor of outlook and sentiment in Australian rural industries. The most robust study of its type in Australia, the survey has been conducted since 2000 by an independent research organisation interviewing a panel of more than 2000 farmers throughout the country each quarter. The next results will be released in November 2007.