Australian sheep sector takes a hit as general ag confidence lifts

Sheep Central, June 14, 2023


AUSTRALIAN rural confidence – while still negative – has seen a marginal improvement in positivity, the results of Rabobank’s latest quarterly survey of more than 1000 Australian farmers shows.

However, the latest quarterly Rabobank Rural Confidence Survey released yesterday indicated confidence in the sheep industry has taken a hit, with 40 percent of producers surveyed expecting the agricultural economy to worsen, up from 35pc in quarter one of 2023.

While sheep producers were less concerned about falling commodity prices, there was increased concern around rising input costs and overseas markets and economies, Rabobank said.

The survey found general rural worries about commodity prices and input costs have eased, but remain a concern along with interest rates and the dry start to the year in some states.

Tasmania and Western Australia were the only states to return a drop in confidence.

The latest survey showed a lift in confidence nationally among producers surveyed, from -25 percent in the first quarter of 2023 (the lowest level since late 2018) to now sit at -22pc.

While around half the farmers surveyed expected no change to how the Australian agricultural economy performs over the next 12 months, 13pc were now anticipating conditions will improve (up from 11pc in the previous survey) and slightly less expected conditions to worsen (35pc, down from 36pc previously).

Fewer farmers who thought conditions will worsen are now worried about falling commodity prices (56pc, compared with 68pc in the previous quarter) or rising input costs (down to 29pc from 35pc last quarter).

However, an increased number of farmers are now concerned about government intervention/policies, with the number of farmers citing as a reason for apprehension lifting to 18pc from 10pc in the previous survey.

Rabobank group executive for Country Banking Australia, Marcel van Doremaele, said the survey paints a picture of how farming conditions across the nation drive a range of confidence levels.

“While nationally confidence increased marginally, it’s riding on the back of a much larger surge of positivity in Queensland, where confidence lifted from -30 per cent to -13 per cent,” Mr van Doremaele said.

“We can’t credit this just to winning the State of Origin opener – seasonal conditions and commodity prices are the real drivers of the optimistic outlook in Queensland. These factors also improved confidence in Victoria, although not as notably as in the Sunshine State.

“Across the rest of the country, sentiment is more tempered. Although it remains in negative territory in all states, confidence has stabilised in South Australia and NSW and dropped off significantly in Tasmania and Western Australia,” he said.

“Farmers have ridden a rollercoaster of seasons, historically high commodity prices and eye-watering input costs in recent years.

“Now, as the heat comes out of many commodities and input prices ease, farmers are adjusting their outlook in response to ‘normalisation’ of economic conditions,” Mr van Doremaele said.

“Seasonally, they’re still experiencing a mixed bag on a national level, which also drives a conservative outlook. The mention of El Niño weather patterns also tempers confidence.

“Many grain growing regions in SA and WA had a dry start to planting – although since the survey was conducted, there’s been some great rainfall to really kickstart winter crops, whereas in Victoria early opening rains on the back of strong sub soil moisture underpinned a positive outlook for the 2023 crop.”

Other commodities

Sugar, beef, dairy and cotton producers all had improved outlooks in the latest Rural Confidence Survey.

Sugar: Sugar was the only sector where confidence moved back into the black, increasing from -28pc last quarter to 22pc in the most recent survey in response to very high sugar prices.

Beef: Nationally, confidence in the beef sector improved from -29pc in quarter one to -21pc in the most recent survey. Falling commodity prices were still a cause for concern, but there was some easing, with 64pc of those who are pessimistic citing this compared to 70pc in the previous quarter. Rising input costs also eased as a reason for worsening conditions (24pc, back from 30pc), but overall Australian beef producers were more concerned about government interventions/policies, rising interest rates and drought.

Dairy: Despite anticipating a reduced milk price on 1 July, Australian dairy producers were more upbeat than last quarter with their confidence in the agricultural sector lifting from -22pc to -15pc.

Cotton: Cotton growers also had a more bullish outlook this quarter thanks in part to recharged water storages, which pushed confidence from -59pc in the previous survey to -20 per cent this quarter.

Grains: Confidence also fell within the grains industry, easing from -19pc to -25pc, on the back of concerns about drought, falling commodity prices, rising input costs and rising interest rates.

Notably, concerns about drought were up, and 42pc of grain growers nationally who were pessimistic nominated this as a reason for worsening conditions compared with 18pc in the previous quarter after a dry start to the planting in many grain growing regions.

Farm performance and investments

Despite marginally higher confidence, Australian farmers remain cautious about increasing investment in their farm businesses.

Fewer respondents expect to increase their investment over the next 12 months (21pc this quarter compared with 25pc in the previous survey). On-farm infrastructure such as fences, silos and yards remain at the top of the shopping list. Of those who plan on increasing their investment over the next 12 months, 72pc nominated on-farm infrastructure (down from 79pc in quarter one).

“Farmers across the country are realigning their investment intentions and focusing spending on projects that will deliver essential productivity gains, including laboursaving infrastructure and technologies.

“There’s also an ongoing focus on investments which will strengthen their seasonal resilience,” Mr van Doremaele said.

There was a shift in other areas where farmers will focus their investments, with fewer nominating new property purchases to expand their operation (21pc, down from 28pc the previous quarter) and also fewer intending to increase livestock numbers (34pc, down from 41pc). New technologies are an area of interest for more farmers with 45pc intending to invest in this space, compared with 42pc previously. More farmers want to invest in labour (26pc, up from 20pc) and in education (23pc, compared with 20pc in quarter one).

“The challenge of maintaining an agricultural workforce isn’t going away anytime soon, so we’re seeing farmers commit to capacity-building strategies,” Mr van Doremaele said.

With the survey falling after the Reserve Bank of Australia’s pause on interest rate hikes in April – but prior to the June cash rate increase – concerns around interest rates remained stable, cited as a factor for worsening conditions by 21pc of farmers who were pessimistic (compared with 20pc the previous quarter).

Slightly more farmers (16pc, up from 14pc in quarter one) expect to increase their total farm debt over the next 12 months.

These new borrowings will be injected into on-farm capital expenditure for 46pc of farmers (up from 38pc in the previous quarter) as well as for working capital (26pc, up from 22pc).

Fewer farmers plan to borrow to purchase property – falling from 34pc in quarter one to 17pc in the latest quarter. There was a range in appetite for borrowing to fund expansion nationally, with Queensland farmers leading the way (24pc) followed by Victoria (19pc).

Grain, sheep and dairy farmers had the strongest intention to use new borrowings to fund property purchases.

“While we’re still seeing strong demand for rural properties – especially wellpresented, ‘blue chip’ offerings when they come on the market – overall there’s a decrease in the number of farmers who intend to purchase new farming land in the next 12 months,” Mr van Doremaele said.

“This reflects how our industry is reassessing where key factors such as markets, input costs and of course interest rates have landed following recent adjustments and farmers taking a hard look at what this means to their bottom line.” Nationally, there was increased pessimism about farm income.

Only 17pc of farmers anticipate their income will increase, down from 20pc the previous quarter, and more expect it to decrease (41pc, up from 36pc in quarter one). However, the number of farmers who view their farms as viable remained similar to previous levels.

The Rabobank Rural Confidence Survey is a comprehensive monitor of outlook and sentiment in Australian rural industries and questions an average of 1000 primary producers across a wide range of commodities and geographical areas throughout Australia on a quarterly basis. Rabobank said it is the most robust study of its type in Australia and has been conducted since 2000 by an independent research organisation.

The next results are scheduled for release in September 2023.

Source: Rabobank


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