Farmer optimism bounces back

According to Rabobank’s latest quarterly Rural Confidence Survey, Australian farmers are heading into the New Year with growing optimism after a year of challenges around high input costs, excessive rainfall and biosecurity concerns.

Key points:

According to the survey, 15 per cent of farmers were expecting improved business conditions in the coming 12 months (compared with 14 per cent last quarter), while 50 per cent had a stable outlook (up from 43 per cent). A total of 31 per cent expected operating conditions to deteriorate (down on the 36 per cent with that view previously).

Rabobank Australia CEO, Peter Knoblanche, said the latest survey reflects an enduring confidence in agriculture, despite the mixed bag of challenges Australian farmers continue to face.

“Domestic and global demand for our rural commodities underpins productivity and profitability across sectors, and, with three years of improved seasonal conditions now under our belts, farmers have the confidence to make long-term investments into their businesses,” he said.

“That said, we’re still seeing the seasonal resilience of farming businesses being tested – many have weathered droughts and bushfires to then face extreme wet conditions, which create challenges of a different nature. This has reined in the earlier seasonal optimism for some, while for others La Nina will deliver a record grain harvest and set up their feed base and soil moisture reserves for the new year.

“It certainly hasn’t been a one-size-fits-all this year, which is driving the varied responses of farmers across states and sectors.”

Farmers with a positive and neutral sentiment cited good seasonal conditions and good commodity prices as key drivers of their optimism.

On the other hand, the high cost of farm inputs – such as fuel, fertiliser and energy – remains a huge concern for farmers. Concern around government interventions and policies also appear to be rising.

However, farmers seem to be less worried about softening markets or commodity prices, with 21 per cent of farmers with a negative outlook citing this as one of the drivers, compared with 40 per cent in the previous survey.

Concerns about biosecurity also plummeted, as the threat of foot and mouth disease (FMD) a few months ago wanes.

Interestingly, inflation was not found to be significantly weighing on rural confidence, with only three per cent of farmers listing it as cause for their pessimistic outlook. Despite recent interest rate hikes, interest rate concerns were not heightened in the latest quarter.

The recent flooding and excessive rain in parts of New South Wales failed to dampen overall sentiment among farmers there, with confidence rallying in the latest quarter. More farmers were expecting business conditions to improve and almost half were expecting conditions to remain stable.

In Victoria, however, the extended rainfall and significant flooding saw rural confidence plateau with fewer farmers anticipating business conditions would improve, but also fewer expecting them to deteriorate.

In Tasmania – where farmland was mostly saturated but not flooded – rural sentiment improved slightly, on the back of strong beef and dairy prices and seasonal conditions which, despite cropping delays, will generally set producers up for the year ahead.

In Queensland, where seasonal conditions were generally more positive than other parts of the eastern states, confidence has stabilised after a significant decline last quarter, with fewer producers pessimistic about prospects in the coming 12 months.

South Australian farmer confidence also edged higher, after a drop last quarter, with the state’s rural sentiment the highest in the country. 

Confidence within Western Australia’s farming sector remains suppressed this quarter, with high farm input costs and the prospect of easing commodity prices the main concerns.

Confidence in the beef sector has lifted the most out of all sectors in the latest quarter, with sheep producers also reporting higher levels of optimism thanks to good market conditions delivering strong prices for the livestock sector.

However, all other commodities reported a decline in sentiment.

Despite Australia being on track to harvest a third consecutive bumper winter crop, grain growers’ confidence has fallen as they remain concerned about wet weather conditions.

“While growers in some parts of Western Australia and South Australia will reap record, or near-record, crops, the La Nina roulette means many growers in Victoria and NSW are coming to terms with the impact of flooding and excessive rain and some are still unable to even get out into their paddocks,” Knoblanche said.

“With low-lying paddocks under water for extended periods of time, these growers are facing yield, volume and quality downgrades as well as, for some, simply unharvestable crops.”

Rising input costs and labour shortages also weighed heavily on the minds of grain farmers.

Dairy farmers’ confidence also plummeted in the latest quarter, due mainly to concerns about wet weather conditions. Sugar cane growers were shown to be the least optimistic of all sectors, with just 10 per cent reflecting a positive sentiment.

Knoblanche said this year’s cane crop was large with production up from last year, although wet weather had caused delays in the crush, and growers’ main concerns were about high input prices and excessive rainfall.

Confidence within the cotton sector has also declined due to wet weather, with a reduced total area expected to be planted across New South Wales, compared with original expectations.

In line with the uptick in national farmer confidence levels, farmers were slightly more optimistic about their income expectations in the year ahead.  A total of 29 per cent indicated they expected their incomes to rise, 45 per cent were expecting similar incomes to the previous year while 25 per cent anticipated a decrease.   

Appetite to invest in farming operations had also increased in the latest quarter.

The number of farmers planning to increase spending on their farm businesses in the coming 12 months edged up to 27 per cent (from 25 per cent previously), while the number planning to reduce their spend had declined to nine per cent (from 13 per cent). A total of 64 per cent indicated they would maintain the same level of investment in their farming operations.

For those planning to increase spending in the year ahead, on-farm infrastructure – such as fences, silos and yards – topped the shopping list (planned by 79 per cent), while half have earmarked capital for new plant and machinery and 47 per cent are looking to grow livestock numbers (up from 37 per cent the previous quarter).

The appetite for purchasing land held fast, with 26 per cent of those farmers who were planning to up their investment saying they intended to fund property purchases to expand their farming operations (compared with 22 per cent in the previous quarter).

The next Rabobank Rural Confidence Survey results are scheduled for release in March 2023.

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