High commodity prices sustain farmer confidence

As Australia harvested one of its largest winter crops in history, estimated to be a record 61.9 million tonnes, farmers are maintaining buoyant about the year ahead and are intending to spend up big this year, according to Rabobank’s latest quarterly Rural Confidence Survey.

A record harvest and record high prices for Australian agricultural produce are contributing to high levels of optimism in the sector, however farmers are becoming wary of the rising cost of key inputs, Rabobank said.

As the survey was completed prior to the excessive rainfall events which led to widespread flooding in NSW and Queensland, the long-term impact of the disaster is not factored into these results.

The survey, completed last month, found 31 per cent of farmers expect agribusiness conditions to improve on last year – down slightly on the 35 per cent with that view last quarter.

Just over half expect a continuation of last year’s very good business conditions, while the number expecting a deterioration was 14 per cent (compared with 13 per cent in the previous quarter).

Livestock producers and canegrowers were found to be the most optimistic.

Rabobank Australia CEO, Peter Knoblanche, said while the sector is facing some challenging seasonal conditions and natural disasters, consistently-high commodity prices over the past three years have put the nation’s farmers in a very strong position.

“Australian farm businesses are overwhelmingly optimistic about the long-term fundamentals underpinning agriculture,” he said.

“Low interest rates and continued strength in our markets are helping farmers create opportunities for growth and expansion which is driving greater productivity across the sector.”

He added the regions in southern Queensland and northern NSW, which were affected by the recent floods, had been some of the most optimistic in the recent survey, and the full extent of the damage of the floods to agriculture was still unclear.

“The flooding and extreme rainfall have had major impacts on many agricultural producers in these regions,” he said.

“In particular, dairy farmers have suffered herd losses and damage to infrastructure. There have also been livestock losses among cattle farmers as well as crop damage in sectors such as horticulture, sugar cane and soy beans.

“In addition, agricultural freight and logistics networks were significantly affected and may remain impacted for some months. The full extent of the damage is still not yet known and, for many in these regions, it may take a number of seasons to recover.”

For the country more broadly, the latest survey revealed commodity prices ‘as king’, with 83 per cent of people expecting improved prospects in the coming year citing prices as the driving factor. Seasonal conditions were also a major contributor to the positive sentiment.

Almost two-thirds of farmers predicting a deterioration in business conditions attributed that view to rising input costs.

Knoblanche said Rabobank analysts were closely monitoring the impact of the Russia-Ukraine conflict on markets and supply of key agricultural inputs – particularly for urea and, to a lesser extent, potash – with any rise in input prices likely to weigh further on farmer sentiment.

“The worst impacts of the geopolitical situation on food security – in terms of availability and food price inflation – are sadly most likely to affect those in the poorest nations of the world,” he said.

“Based on the current production outlook, it is pleasing that Australia should be in a good position to contribute well in providing exports to help with global supply.”

Bright future for Aussie agriculture

Latest harvest exceeds expectations

Tasmania and Queensland farmers reported the highest confidence levels in the country – marginally ahead of New South Wales – and were the only states to record a slight improvement in sentiment in the quarter.

High livestock prices were shown to be behind Tasmanian producers’ key reason for optimism, with 40 per cent expecting agribusiness conditions to improve over the year ahead. Meanwhile, 51 per cent expect the currently good business settings to continue.

Before the unfolding flooding disaster, Queensland and NSW farmers also exhibited very high levels of optimism, with 39 per cent and 38 per cent of respondents respectively expecting improved business conditions in the coming year. The main cause for optimism in those states was above-average rainfall throughout summer sustaining sub-soil moisture, hence ensuring excellent pasture growth and solid prospects for winter-crop planting.

Bushfires and dry conditions have tempered optimism in Western Australia over the summer, however most farmers are expecting farm business conditions to stay the same or improve. The state’s farmers also had the strongest appetite in the country to purchase additional land.

Farmer confidence levels had also stabilised in South Australia, after falling in the previous survey, with just over half of producers now expecting conditions to remain the same over the coming year. Good summer rainfall over the state’s pastoral areas had buoyed beef producers, with water also making its way into the Lake Eyre system. The state also enjoyed an above-average harvest and good crop yields last year.

Sentiment remains at solid levels among Victorian producers, with dairy, beef and sheep producers all optimistic thanks to good feed reserves, excellent water allocations and continuing high prices.

Grain farmers aren’t so positive this time around, with the survey revealing more producers in this sector expecting conditions to worsen than improve this quarter. Input costs were shown to be the main concern, while some also cited falling commodity prices as a cause for concern.

While 44 per cent of grain growers expect their farm incomes to remain the same in the next 12 months, 28 per cent expect an income decline and 26 per cent expect an increase.

Beef producers continue to enjoy the winning combination of wet seasons and high prices, with 34 per cent tipping conditions to improve further over the year ahead. Almost half of cattle farmers surveyed are expecting their gross farm incomes to increase on last year’s returns.

Strong commodity prices underpin solid sentiment among sheep producers with almost one third surveyed expecting conditions to keep improving over the next 12 months.

Although dropping slightly since January, lamb prices had been setting new records for most of late 2021, while fine wool prices have carved a way through some COVID uncertainty to reach some solid levels again.

Investment intentions in the sheep sector have reached one of the highest levels in more than a decade.

Most dairy producers surveyed expected a continuation of current good seasonal and market conditions, with an abundance of feed and water security helping to lock in high levels of positive sentiment in the sector.

Prior to the extreme weather events in Queensland in the past fortnight, sugar producers were the most optimistic of all sectors, primarily due to positive prices. The survey found 55 per cent of canegrowers were expecting business conditions to improve at the start of this year.

Australian farmers are still maintaining a fairly positive outlook when it comes to income expectations for the next 12 months. The survey found 41 per cent of farmers forecast their farm incomes to increase this year, while 42 per cent expect incomes to stay the same and 15 per cent expect a decrease.

The survey found 40 per cent of the country’s farmers intend to increase investment in their farm businesses over the coming year.

On-farm infrastructure spending, followed by investment in new machinery and equipment, remain priorities for those surveyed, while the survey also noted a growing level of investment being directed towards new technology this year.

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 next results are scheduled for release in June 2022.