Rabobank survey sees enduring confidence

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Farmers finished 2021 with positive outlook, though impacts of rain-affected harvest are still to be felt

Australian farmers are predicting the ‘magic combination’ of high commodity prices, low interest rates and good seasonal conditions will continue in the year ahead – sustaining a continued high level of confidence across the sector, says Rabobank in its Q4 Rural Confidence Survey.

The impact of recent excessive rainfall and flooding in southern Queensland and northern and central New South Wales’ grain-growing regions – which devastated many crops on the point of harvest – has yet to be fully considered, as the survey was in the field when the rains hit.

This is expected to significantly alter previously high income projections in the grain sector.

Growers in impacted regions have been counting the cost of significant downgrades or complete ruination of what was shaping up as one of the biggest winter harvest years on record.

Both lamb/mutton and wool prices remain high

Fortunately, production losses have not been as significant in the livestock sector, which continues to enjoy sustained high commodity prices and favourable grazing conditions, while many summer croppers and cotton producers look set to capitalise on surety of water supplies and full soil moisture profiles.

The survey showed while overall national farmer confidence had softened on last quarter, it remained at strong levels, with 84 per cent of Australian farmers surveyed forecasting the agricultural economy will continue to perform at, or exceed, its currently-excellent levels in the year ahead.

The survey has also reported record high levels of business viability, with the Farm Viability Index – measuring farmers’ assessments of their own business viability – now sitting at the highest level in the survey’s history.

Rabobank Australia CEO Peter Knoblanche says strong demand for Australian commodities, good seasons and favourable business settings were supporting solid, long-term confidence, although this would likely be diminished among grain growers and other flood-affected producers heading into the end of 2021.

"Overall, there is significant long-term positivity in Australia’s farm sector – we see it in the high levels of farm viability reported, in farmers’ strong investment plans, and in the optimism about the year ahead," Knoblanche says.

"But while above-average rainfall has been a blessing in some sectors, it has caused significant heartbreak in others.

"The full extent of the damage to this year’s east coast winter grain harvest, in particular, is still being assessed, and it’s unclear yet just how much grain has been downgraded to feed quality, and how much will be a write-off. This is particularly heartbreaking for grain growers as they were very optimistic about this year’s crop – it had enormous potential in both yield and value."

Knoblanche says Rabobank’s Rural Commodity Price Index (comprising local prices for 10 agricultural commodities) eclipsed its previous all-time high in November, with small drops in the price of lamb and mutton (meat), wool and sorghum offset by increases for all other commodities, particularly canola, to set a new benchmark in the 12-year history of the index.

The ongoing rise in input costs – particularly fertiliser and farm chemicals – was growing as a concern, however, and could be a significant challenge for the farm sector next year.

Cotton sector confidence was again the stand-out this quarter, with 78 per cent of growers surveyed expecting business conditions to improve in the next 12 months (up from 70 per cent in September), and analysts expect this to be the case for some time, given the now-healthy state of water storages and dams in cotton-growing regions.

Positive seasonal conditions continue to support young cattle prices, with continuing strength in Australia’s beef market translating to firm optimism among beef producers.

Lamb and mutton producers have also had a solid year with strong returns, underpinning optimism and longer-term business plans.

Knoblanche says limited livestock numbers combined with strong global demand for lamb and mutton should help keep demand and prices high. Meanwhile, for wool growers, fine and superfine wool prices are holding at high levels on the back of improved demand and combined with excellent seasonal conditions.

While dairy sector confidence has eased, it was still very solid in the fourth quarter, and good seasonal conditions, water availability and demand are underpinning longer-term optimism about business conditions over the coming couple of years, fuelling ongoing investment within the sector.

The survey found a combined 90 per cent of the country’s dairy producers optimistic the current conditions will either continue or improve over the year ahead.

In line with an overall easing in sentiment, Australian farmers have slightly revised down forecasts for the financial performance of their own businesses. The latest survey found 47 per cent of those surveyed expect their gross farm incomes to increase over the year ahead (was 51 per cent) while 40 per cent predict earnings to be the same.

The survey found close to 40 per cent of farmers surveyed expect to increase investment in their farm business next year. For those intending to increase spending, 71 per cent have plans for on-farm infrastructure and 53 per cent for new plant and machinery.

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