Farmer sentiment sinks to four-year low

Following a lift in optimism earlier in the year, rural sentiment has taken a dive according to Rabobank’s latest Rural Confidence Survey.

The survey, completed in February, found, nationally, the number of farmers expecting the agricultural economy to improve over the coming 12 months dipped to 11 per cent in the first quarter of 2023, compared with 15 per cent in December 2022.

Although just over half of Australian farmers continue to expect business conditions to stay the same (51 per cent, marginally up on 50 per cent), more are anticipating conditions to worsen (36 per cent, up from 31 per cent).

The main factor driving those with negative outlook is falling commodity prices – cited by 68 per cent of farmers expecting conditions to worsen. This represents a significant increase of 21 per cent from previous quarter.

Rising interest rates also weighed heavily on farmers minds, with 20 per cent of farmers expecting conditions to worsen citing that as a cause for concern, up from 11 per cent the previous quarter.

While not currently ranked as a major driver of negative outlook, there were also emerging concerns of a return to dry conditions.

This survey, 13 per cent of farmers with a negative outlook reported being concerned about drought, up from just two per cent with that concern in the previous quarter. Likewise, concern around too much rain fell from 32 per cent to just six per cent.

Concerns around farm input costs – such as fuel, fertiliser and energy – have eased somewhat, down from 49 per cent last quarter, but remains a concern for 35 per cent of farmers expecting conditions to worsen over the next 12 months.

Farmers who expect business conditions to improve were buoyed by commodity prices which are still strong – particularly for dairy, cane and beef producers – with 55 per cent listing this as a reason for their positive outlook, a similar level to the previous quarter.

There was increased confidence in overseas markets/economies contributing to good economic conditions – nominated by 26 per cent as cause for their positive outlook (up from 18 per cent).

Rabobank Australia CEO, Peter Knoblanche, said the latest survey reflects the combination of commodity prices, global economic challenges and high production costs facing farm businesses.

“Despite having their resilience tested throughout 2022, most Australian farmers ended last year on a high, buoyed by seasonal conditions and high commodity prices which saw our industry break farm production value records for the third year in a row,” he said.

“However, as we see the heat come off many commodities – albeit down from significant highs – farmers recognise conditions will start to return to more ‘normal’ levels.

“This survey captures their realistic expectations that commodity prices will likely not return to the highs this year that we saw in the previous 12 months.

“Although there’s relief with some input prices easing, the anticipation of further interest rates hikes will continue to place pressure on farm budgets.”

Nationally, Western Australia and Tasmania were the only states to record an uptick in confidence for the year ahead.

Although rising interest rates, hand-in-hand with falling commodity prices, were still on WA farmers’ radars, they were buoyed by their second consecutive record-breaking winter grain crop.

Likewise, positive seasonal conditions through summer also boosted Tasmanian farmer confidence in the year ahead despite the economic factors at play.

However, despite a record harvest for many, South Australian farmers started 2023 with lowered confidence, eroded by falling commodity prices and rising interest rates.

Victorian and NSW rural sector confidence also dipped, driven down by harvest delays in the aftermath of last year’s excessive rain, and – once again – compounded by easing commodity prices and interest rates.

It was the same story in Queensland, where only one in 10 producers expect agribusiness conditions to improve. Dry seasonal conditions played a factor in this state’s negative outlook.

Sentiment also varied across the different commodity sectors.

The biggest fall in confidence was recorded in the beef sector, where only 10 per cent of producers expect the agricultural economy to improve – falling from 17 per cent last quarter.

Knoblanche said beef producers who are anticipating improved conditions ahead are looking beyond domestic factors to the strength of overseas markets, with a third identifying this as a driver of their confidence.

Confidence also fell in the dairy industry.

The biggest shift in factors identified by dairy farmers who think the economy will worsen was around falling commodity prices – with 71 per cent now citing this, significantly up from 13 per cent last quarter.

Knoblanche said since global dairy commodity prices had peaked in quarter 2, 2022, spot prices have fallen between 20 and 40 per cent, depending on the product.

“Australian farm gate milk prices are still at record levels across the country though. And while weaker commodity returns will flow across southern Australian pricing, there should be a firm landing zone, given the solid domestic market returns and competition for milk supply among the dairy processors,” he said.

“Many dairy farmers enter autumn with good feed reserves and the availability of irrigation water and supplementary feed (after a decent 2022/23 winter crop) – and dairy farmer margins remain positive – as preparation begins for the next season.”

Confidence remained stable in the grains and sheep sectors.

Sugar cane was the only sector on a national level to report increased confidence, but this was from a low base with 13 per cent reporting an optimistic outlook compared with 10 per cent last quarter.

Nationally, more farmers expect lower farm incomes in the year ahead (36 per cent, compared with 25 per cent last survey) while fewer anticipate higher incomes (20 per cent, down from 29 per cent).

However, the sector remains robust with the number of farmers who describe themselves as easily viable/viable holding steady quarter on quarter.

“The combination of commodity prices, global economic challenges and high production costs compounded this quarter to contribute to a more unfavourable outlook from a gross farm income perspective,” Knoblanche said.

“These key drivers also pulled together to dampen investment intention, with slightly more farmers planning to ease off on the level of investment in their business in the coming 12 months.”

Fewer farmers indicated they were looking to inject more investment in their business  – 25 per cent, back slightly from 27 per cent last quarter – and more were seeking to curb their investment commitments (12 per cent, up from nine per cent).

The majority of farmers who do intend to increase investment will channel this towards on-farm infrastructure, such as fences, silos and yards. This remains stable at 79 per cent, quarter on quarter.

Farmers’ intentions to invest in other significant areas saw a pull back, including new plant and machinery (44 per cent, back from 50 per cent last quarter), increasing livestock (41 per cent, down from 47 per cent) and adapting new technologies (42 per cent, was 44 per cent)

This survey found a heightened focus on seasonal resilience, with more farmers channelling funds towards irrigation/water infrastructure.

Property purchases to expand farming operations are also tipped to increase slightly (28 per cent, up from 26 per cent), and new borrowings for off-farm capital investments such as residential properties and shares also lifted from one per cent last quarter to four per cent in the most recent survey.

It’s a similar tale on the other side of the ledger - while 56 per cent (up from 53 per cent) will keep farm-related debt the same, less intend to increase debt levels (14 per cent, compared with 18 per cent last quarter).

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