Farmer confidence slides to five-year low as drought grips

Heightened concerns over the dry weather gripping much of rural Australia has driven down confidence among the nation’s farmers to a five-year low, the latest Rabobank Rural Confidence Survey has found.

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.

The 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.

“The majority of New South Wales is now in the grip of drought, with 63 per cent of the state in drought or drought onset, and the balance largely in drought watch, according to the DPI Combined Drought Indicator,” Mr Knoblanche said.

“Meanwhile large swathes of Queensland have been drought-declared since early 2013, with 57.4 per cent of the state remaining in drought.”

This has seen Queensland and New South Wales bear the bulk of the decline in winter crop plantings, he said, with planted hectares expected to be down by 11 and seven per cent, respectively.

In contrast, Mr Knoblanche said the “tables had turned” in Western Australia since the survey was conducted, with recent widespread rain. “Nearly all of the crop was planted into dry soil, but crops in the west will now have the chance to germinate,” he said, “and farmers will be able to finish their planting programs.”

While conditions had improved in South Australia and parts of Victoria, Mr Knoblanche said 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, Mr Knoblanche said, with the Eastern Market Indicator recently breaking through “the seemingly insurmountable 2000 cent mark”.

“There is a lot of excitement in the wool industry, with wool now delivering some of the strongest returns growers have ever seen,” he said.

Confidence in the sheep sector is now outstripping other commodity sectors, he said, 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.

Farm business performance and investment

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.

While confidence was down in Western Australia, we would expect it now to be much higher given the recent widespread rain, and current forecasts suggest more rain on the way,” Mr Knoblanche said.

“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, “which are already battling very dry conditions.”

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.

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.

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.

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Denise Shaw Skye Ward

Head of Media Relations Media Relations Manager

Rabobank & Rabobank &

Phone: 02 8115 2744 or 0439 603 525 Phone: 02 4855 1111 or 0418 216 103

Email: [email protected] Email: [email protected]

/Public Release.