AUSTRALIAN rural confidence has moderated slightly this quarter, after surging early in the year, as worries about global commodity prices weigh on the nation’s farmers.
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The latest quarterly Rabobank Rural Confidence Survey has shown deteriorating prices in some commodities have stifled rural sentiment, although favourable seasonal conditions are fuelling farmer optimism in the eastern states.
However, despite moderating, the rural confidence index remains in positive territory, with more farmers still expecting conditions to improve over the next 12 months than those expecting conditions to deteriorate.
The latest survey – completed last month – found 29 per cent of farmers expected conditions to improve in the coming year, down from 30 per cent in the previous quarter. The number of farmers expecting conditions to worsen increased to 23 per cent, up from 19 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 overall the survey had seen rural confidence plateau, with many farmers weighing up the opposing impacts of positive and negative market conditions.
“Favourable autumn rainfall across eastern Australia has topped up sub-soil moisture profiles and resulted in the best winter crop planting conditions in nearly a decade in many regions,” he said.
“Other things being equal, we would have expected very buoyant confidence results in the survey this quarter, but unfortunately grain prices are depressed and the recent locust plague across southern New South Wales, Victoria and parts of South Australia has caused some crop damage. Fortunately most growers delayed planting until the plague subsided however vigilance will be needed in spring when eggs hatch.”
After contending with a strong currency in past months, agricultural exporters should receive welcome relief from the recent depreciation in the Australian dollar, Mr Knoblanche said.
“The strong Australian dollar had been a frustration for exporters for some time. The depreciation, which came after the survey was in field, will result in higher realised prices for most exporters and will help to counter balance the impact of lower prices for producers of commodities such as grain and sugar,” he said.
“Despite the mediating influence of the lower dollar, the subdued wheat price remains a concern and we are seeing a number of farmers looking to plant alternatives as a result. The strong cotton price, upwards of $450 a bale, coupled with high rainfall in the north of New South Wales and southern Queensland, may see producers moving back to growing cotton.”
The latest Rabobank Rural Confidence Survey showed, not surprisingly, that an expectation of favourable seasonal conditions was the main driver behind increased farmer confidence this quarter. 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, up from 41 per cent last quarter.
Mr Knoblanche said despite favourable seasonal conditions in much of the country, producers in several key regions – particularly the south west corner of Western Australia and parts of South Australia – had been anxiously awaiting a late break to the season at the time of the survey.
“Fortunately conditions have improved since with some good rains in late May,” he said.
“It’s certainly the case that most producers now are off to a very good start, however, as always, further rains through the season will be needed to ensure good yields.”
Of those primary producers surveyed who expected conditions to worsen, commodity prices were cited as the major concern, nominated by 56 per cent of producers – primarily grain and mixed farm operators impacted by lower grain prices.
The strong Australian dollar (at the time of the survey) and rising input costs were also top of mind, cited by 21 per cent and 27 per cent of producers respectively.
While grain prices have benefitted from the recent volatility in the Australian dollar, Rabobank’s Food & Agribusiness Research and Advisory unit says, by long-term averages, grain prices remain subdued due to a build up in global stocks which are expected to cap any significant price gains.
Wheat has the most burdensome fundamentals picture, while the price outlook for canola and pulses is more positive. Cotton remains the most buoyant – robust pricing and improving water availability suggest an optimistic outlook for the sector.
Mr Knoblanche said the impact of rising input prices was most likely to be felt by those producers with low stocks of chemicals. The depreciating dollar, coupled with low supplier inventories and the reliance on imports, is expected to result in higher prices over the remainder of the year.
“Fertiliser stocks however are at higher levels and it is felt that there will be less pressure on prices in this market,” he said.
