Farmer confidence up despite drought

By: Cat Fitzpatrick

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The latest Rabobank Rural Confidence Survey shows that farmers feel a greater confidence in drought preparedness

The latest Rabobank Rural Confidence Survey shows that farmers feel a greater confidence in drought preparedness
The latest Rabobank Rural Confidence Survey shows that farmers feel a greater confidence in drought preparedness - Photo: Noelia Ramon - TellingLife/Moment/GettyImages

The results of the Q4 Rabobank Rural Confidence Survey for 2018 were released at the beginning of December, with rural confidence lifting from a 12-year low.

Much-needed rain bolstered the confidence of farmers in some drought-struck areas. However, the survey found that 40 per cent of farmers continue to hold a pessimistic outlook for the year ahead, with drought a major concern.

In Western Australia it was a different story, with the state providing half of the nation’s winter crop.

Overall, 94 per cent of farmers surveyed indicated some level of drought preparedness, with over 50 per cent reporting that they are more prepared now than five years ago.


Drought focus

With the aim to monitor outlook and sentiment within Australia's rural sector, the Rabobank Rural Confidence Survey questions an average of 1,000 primary producers across a wide range of agricultural commodities and geographical areas throughout Australia.

The survey asks farmers a series of questions on topics including:

  • how they expect the agricultural economy to perform;
  • factors affecting confidence;
  • expectations about their own farm business performance and income; and
  • investment intentions.

In the latest survey, farmers were also questioned about how prepared they are to manage drought conditions.

The latest data from the Australian Government’s Bureau of Meteorology regarding the drought says that November rainfall was above average in many areas, easing the drought in the short-term, but the year to date has been exceptionally dry for New South Wales, Victoria, eastern South Australia, and the southern half of Queensland. Australian maximum temperatures for 2018 to date have also been the second-warmest on record, contributing to the large number of bush fires in Queensland.

Rabobank Australia CEO Peter Knoblanche says Australian farmers had put in place structures and developed strategies to help manage the variables in seasonal conditions, including building up cash reserves when seasons allowed and investing in water and feed infrastructure.

"Producers have become more proactive, rather than reactive, in the way they manage drought," he says.

"But even the best strategies become harder to execute the more prolonged and severe the drought is, and there are parts of Queensland and New South Wales that have been facing adverse seasons for a number of years now."

Despite this, Queensland posted the biggest recovery in farmer confidence in their longer-term business strength compared to previous droughts, with 93 per cent surveyed reporting their farms are viable.

Rabobank regional manager for Southern Queensland and Northern NSW Brad James says that a run of reasonable commodity prices and low interest rates had helped farmers strengthen their own businesses and aided in the resilience to work through this prolonged drought.

Income projections in Western Australia, however, outstripped the rest of the country, with close to half (48 per cent) expecting an increase in incomes in the coming year.

"This positive outlook is in stark contrast to many other regions in Australia, as WA farmers are able to take advantage of the rise in domestic grain prices driven by the tight supplies in the east," Knoblanche says.

This saw the WA farming sector holding the greatest investment appetite in the survey, with 34 per cent of the state’s producers looking to increase investment in their farm business over the coming 12 months – compared to the national average of 18 per cent. That said, across the country, the majority of farmers are still intending to maintain investment at current levels – with 64 per cent holding this view.


Commodity variations

By surveyed commodity, confidence was also up across the board – although remained subdued – in all sectors except dairy, which posted a small decline with 55 per cent of the nation’s dairy farmers expecting conditions to deteriorate over the coming year.

Knoblanche says high operational costs had made it "a really challenging year for many in the dairy sector", as the cost of feed and water is putting considerable pressure on margins.

"This could drive a sizable drop in milk production, particularly in northern Australia and the Murray Darling regions, with the national milk pool at risk of falling to a two-decade low," he says.

In contrast, the biggest turnaround in sentiment was seen in cotton, with confidence improving strongly along with the market outlook.

"With domestic prices trading above $600 a bale, any growers who have the water to plant will have done so, but production is expected to be curtailed by the dry conditions – in the vicinity of 50 per cent lower than last year," Knoblanche says.

Grain grower confidence also lifted, with 34 per cent having an optimistic view on the 12 months ahead – largely underpinned by WA producers.

"With the country expected to harvest its smallest winter crop in 10 years, domestic grain prices are likely to remain elevated well into 2019 and this is boding well for those who have been able to get a crop off, with producers also fetching good returns for crops that have had to be cut for hay or silage," explains Knoblanche.


Value forecasts

The Department of Agriculture and Water Resources (ABARES) also released a report recently, announcing that the gross value of Australian farm production is forecast to decrease by three per cent to $58 billion in 2018–19, six per cent lower than the record production in 2016–17, but still above the 10-year average of $56 billion.

ABARES executive director Dr Steve Hatfield-Dodds says that the annual value of crop production is forecast to decline by seven per cent to $29 billion in 2018–19, driven by a 23 per cent fall in winter crop production nationally, as a result of the drought in cropping regions in New South Wales, Queensland and Victoria.

"Forecasts for an above average winter crop harvest in Western Australia and higher prices for broadacre crops are keeping the value of production from falling further," he adds. "A lower Australian dollar will also help."

"On the other hand, the value of livestock and livestock products is forecast to increase by two per cent to almost $30 billion."

Hatfield-Dodds also points to the Trans-Pacific Partnership (TPP), comes into force on 30 December 2018, as being a welcome development for Australian farmers. The TPP is a trade agreement between 11 countries, which, says the Department of Foreign Aid and Trade, "includes new market access opportunities for Australian exporters of goods and services, as well as investors, that are additional to Australia’s existing free trade agreements". 

"However," adds Hatfield-Dodds, "The continuing trade conflict between the United States and China is a key source of uncertainty in the outlook for Australian agricultural exports."

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