Widespread rain lifts prospects of Aussie farmers while the dairy industry continues to slump

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The latest Rural Confidence Survey shows that confidence in the agri sector is rebounding thanks to widespread winter rainfall that has buoyed the spirits of Australia’s farmers.

Beef and sheep farmers maintained confidence in their prospects, while sentiment lifted in grains, cotton and sugar.

Confidence in the dairy industry has slumped to one of its lowest levels in 15 years as low farmgate prices continued to hang over the 12-month outlook.

Queensland rural confidence has also staged a turnaround, off the back of widespread rainfall, with that state’s farmers now reporting the highest levels of optimism in the nation. However, follow-up rainfall will be needed to sustain confidence levels into the future.

Overall, 37 percent of the nation’s farmers expect conditions in the agricultural economy to improve over the coming 12 months (up from 28 percent in the previous survey), while 16 percent expect conditions to worsen (down from 19 percent). The majority have a stable outlook – 46 percent expecting similar conditions to the previous 12 months.

Rabobank national manager Country Banking Australia Todd Charteris said widespread and significant rainfall events in June and July had alleviated dry conditions across much of the country, underpinning strong production prospects for the season ahead.

“The grains sector has significantly benefited from the timely rain, with a bumper crop on the cards, particularly in Western Australia,” he said.

“Good yields will be critical this season, as grain prices remain weighed down by burgeoning global stocks of wheat, corn and soybeans.”

Charteris said beef and sheep producers were also upbeat about the outlook, with both weather conditions and markets “going in their favour”.

“While many graziers are coming out of a tough winter period, the good winter rainfall has set them up for fantastic pasture growth in coming weeks,” he said.

“Conditions have turned around in many parts of Queensland, with large swathes of the state recording significant rainfall in early July particularly. While it is a ‘God-send’, and has boosted the spirits of many of the state’s dryland farmers and graziers as well as irrigators, much of the state remains drought declared and follow-up rainfall will be critical to sustaining confidence.”

Sugar producers were the most upbeat about their market prospects, with 77 percent citing commodity prices as the reason for their optimism, while beef and sheep graziers were also buoyed by strong market fundamentals.

Conversely, commodity prices were, not surprisingly, a driver of a negative outlook among dairy and grain producers – cited by 94 percent of dairy farmers and 93 percent of grain growers expecting the agricultural economy to worsen as reason for their pessimism.

“The 2016/17 season will remain challenging for those in the dairy sector, with milk prices below the cost of production for many producers,” said Charteris.

“In light of this profound pressure on profit margins, thankfully there has been some cost reprieve with lower prices for fertiliser, temporary water and supplementary fodder.”

Charteris said while there was not much upside for farmgate milk prices in the current season, there were “signs of light at the end of the tunnel, with the taps of supply starting to turn off around the world, which should see global prices start to rise modestly in the first-half of 2017.”

Income

In line with overall confidence levels, farmers’ income expectations for the next 12 months increased – albeit the net result was weighted by significantly lower expectations in the dairy sector.  

Overall, 36 percent of Australian farmers were expecting higher gross farm incomes in 2016/17 than in the previous financial year, while a further 43 per ent expected a similar financial result.  Those anticipating their farm income to decline stood at 20 percent.

These income projections came off the back of a strong result in the last financial year, with 51 percent of Australian farmers reporting higher gross farm incomes in 2015/16 than in 2014/15.

States

Across the country, confidence increased or remained at stable levels in all states, except Western Australia (where it moderated but remained positive) and Tasmania, which bucked the national trend and dipped to a three-year low on the back of extensive flood damage and ongoing challenges in the dairy sector.

The most significant upswing in sentiment was reported in Queensland, with “what, for many, would be considered the best rainfall in several years” driving net confidence to its highest level in the 15-year history of the survey.

Sectors

Confidence lifted strongly across all commodities, except dairy, which retracted further into negative territory to its lowest level in four years.

The biggest increase in confidence was reported in the cotton sector, while sugar producers also posted a surge in confidence.

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. The most robust study of its type in Australia, the survey has been conducted by an independent research organisation interviewing farmers throughout the country each quarter since 2000. The next results are scheduled for release in December 2016.