More rain needed as farmers eye high commodity prices

With southern Australia recording its second-lowest autumn rainfall on record, following an exceptionally hot and dry summer, seasonal conditions were cited as the key concern by 75 per cent of farmers surveyed who had a negative outlook on the coming 12 months – up from 36 per cent in March 2018.

Grain growers were particularly worried by the weather, reporting the biggest drop in sentiment in the survey, with a below-average winter crop now firmly on the cards.

While short-term confidence took a substantial knock, the nation’s farmers continued to report strong farm business viability, and at levels higher than in previous dry periods.

Victorian Farmers Federation president, and graingrower, David Jochinke, was unsurprised by the results and the reasons given.

He said farmer confidence in Victoria at the moment was driven by the weather.

While farmers had been reasonably buoyant low rainfall had raised concerns about the winter months and impact on pastures and crops.

He said commodity prices were a silver lining, but the product still had to be grown.

Farmers needed confidence to assess the risk in their business as well as what investments to make in the longer term.

Marnoo woolgrower, Ben Duxson, Glendemar, said he was extremtly confident about the future for wool in particular.

He said rainfall had been coming in small falls but crops were “in and out of the ground”.

“We have put in place things like Responsible Wool Standard and quality assurance schemes and demand for that type of product is the best I’ve ever seen,” he said.

“In this area the season is well set up, we just need a good spring.”

The Rabobank survey, completed last month, found more than a third of the nation’s farmers (35 per cent), now expect agricultural economic conditions to worsen in the coming 12 months, up from 21 per cent with that expectation in March this year.

Those with a positive view on the year ahead remained relatively steady at 18 per cent (previously 19 per cent), while 41 per cent expected economic conditions to remain relatively the same.

Rabobank Australia CEO Peter Knoblanche said with the dry weather front-of-mind and much of New South Wales and Queensland facing drought conditions, it was no surprise confidence had taken a hit – albeit coming off a high base, from strong levels achieved in recent years.

“Commodity prices have been underpinning the prevailing confidence in Australia’s rural sector for much of the past five years, notwithstanding the dairy downturn and fall in sugar prices,” he said.

“The resilience of farm businesses in this tough season is evident, with the survey showing strong viability, and at levels higher than in previous dry periods. Farmers are also continuing to invest to increase business resilience with rising intentions to invest in on-farm infrastructure, including water and irrigation, and adoption of new technologies.”

With dry conditions taking the ‘front seat’, Mr Knoblanche said, 75 per cent of surveyed farmers expecting conditions to worsen over the next 12 months had cited drought as the reason for their pessimistic outlook, well outstripping other factors weighing on sentiment.

Farmers in New South Wales were particularly anxious about the season, with nine in 10 of those with a pessimistic outlook citing ‘drought’ as the reason conditions were likely to worsen.

Queensland and NSW bared the bulk of the decline in winter crop plantings, with planted hectares expected to be down by 11 and seven per cent, respectively, he said.

While conditions had improved in South Australia and parts of Victoria, rain was critically needed to shore up crop production prospects.

Wool is king

For those Australian farmers expecting conditions to improve, commodity prices were cited by 72 per cent as key reason for their optimistic outlook, up from 61 per cent in the previous survey.

Wool producers are particularly buoyed by price prospects.

Confidence in the sheep sector was now outstripping other commodity sectors, with the survey showing 22 per cent of the nation’s sheep producers expect economic conditions to improve further, while 53 per cent expect a continuation of current conditions.

Business performance

In line with the drop-off in confidence, farmers also revised down expectations for their own gross farm incomes in the coming 12 months.

As such, 33 per cent now expect lower incomes in 2018/19 (compared with 24 per cent in the previous survey), while 45 per cent expect a similar result to the last 12 months.

Those expecting incomes to increase stood at 21 per cent, down from 29 per cent.

Despite lower income projections for all commodities, except dairy, farmers across the country held strong investment intentions for the coming 12 months – although the number intending to increase the level of their investment was pared back to 19 per cent of respondents, down from 25 per cent in the previous survey. The percentage expecting to maintain investment at current levels increased to 69 per cent, up from 63 per cent.

States

Across the country, sentiment was mixed, with New South Wales, Western Australia and Queensland reporting the largest drop-off in confidence to sit at five-year lows.

Meanwhile confidence remained stable, albeit slightly subdued, in Victoria, but lifted and was comparatively strong in Tasmania and South Australia.

“In contrast, the latest BOM forecast suggests winter rainfall could be very much below average for a lot of eastern New South Wales, southern Queensland and northern Victoria,” he said.

In contrast, confidence hit an 18-month high in Tasmania, with comparatively favourable seasonal conditions and strong price prospects, particularly for dairy, feeding into positive sentiment.

Sectors

By surveyed commodity sectors, confidence was down across the board, except dairy and cotton which posted an upswing, but still lagged behind sentiment in the sheep sector.

“Despite seasonal concerns, with many in the east looking to feed sheep through winter, confidence remains strong as graziers fetch wool prices not seen since the artificially high reserve price scheme and the 1952 spike,” Mr Knoblanche said.

“Meanwhile lamb and mutton prices are holding strong, but the survey found growing concern in Western Australia about potential changes to the live export industry.”

In dairy, Mr Knoblanche said milk price expectations for southern export producers was also outweighing seasonal concerns with a full-season milk price in the ‘mid six dollars’ potentially on the cards.

Meanwhile confidence in the grain sector took the biggest hit, down from earlier season highs.

“Early indications point to a national wheat crop in the vicinity of 22.9 million tonnes, but there is considerable downside to this forecast if rains do not eventuate in the next few weeks,” he said.

“The dry, however, has fed into some of the highest domestic wheat and barley prices we have seen in the past 10 years, with reduced plantings also acting as price support for canola.”

Confidence in the beef sector fell back to a five-year low, while in sugar it was back around a three-year low and lagged well behind other commodities.

“Beef confidence has fallen on the back of the ‘dry’ and increased feed requirements, but also prices, which are above the five-year average, but are significantly down from earlier this year, particularly for lighter and younger cattle.”

A comprehensive monitor of outlook and sentiment in Australian rural industries, the Rabobank Rural Confidence Survey questions an average of 1000 primary producers across a wide range of commodities and geographical areas throughout Australia on a quarterly basis.

The survey has been conducted by an independent research organisation. The next results are scheduled for release in September 2018.