June 5, 2012

Rabobank says Australian farmers' confidence down further

Confidence among Australian farmers has declined further into negative territory partly due to falling commodity prices, according to a survey issued Monday (June 4) by Rabobank Australia Ltd.

Rabobank found in the quarterly survey that more primary producers expect conditions to deteriorate than improve, with 34% expecting the agricultural economy to worsen over the next 12 months, up from 28% in the previous quarter, while the number expecting conditions to improve fell to 12% from 16% previously, the bank reported, adding that 51% expect stable conditions.

The value of farm production is about AUD50 billion (US$48 billion) a year of which AUD35 billion (US$34.3 billion) is exported, making the sector an important component of Australia's AUD1.5 trillion (US$1.47 trillion) economy. Sentiment among farmers influences investment intentions and demand for farm inputs, in turn affecting production.

A persistently strong Australian dollar and rising input costs are also pressuring farmers' confidence, according to the Rabobank Rural Confidence Survey.

"These factors are putting the squeeze on farm returns, or if they haven't yet impacted, farmers are anticipating they will in the future," Peter Knoblanche, Rabobank's general manager for rural Australia, said in a statement.

Farm production and yields are mostly favourable, but profit margins have been shaved in part due to falling agricultural prices as a result of subdued investor confidence stemming from the problems in Europe and a slowing economy in China. Meanwhile, there is an oversupply for some commodities due to favourable seasonal conditions in major producing regions, he said.

While there has been some relief for exporters in recent weeks on the currency front, with the Australian dollar depreciating against the greenback, the running costs of farms, such as electricity, labour, fuel and fertiliser, remain of concern, he said.

The survey of 1,200 farmers found sentiment fell in all states except Queensland this quarter while confidence remains subdued across the key commodity sectors. Sugar, cotton and beef producers reported an improvement in sentiment, although confidence remains in negative territory, while dairy, sheep and grain producers are the least optimistic.