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Australian Farmer Confidence at Three-year High

31 March 2011

AUSTRALIA - Australian rural confidence has improved to a three-year high as promising summer rainfall and favourable commodity prices have fuelled farmer optimism, according to the latest quarterly Rabobank Rural Confidence Survey.

The rise comes despite widespread flooding in several regions earlier in the year and is the fifth consecutive quarter that positive sentiment has been recorded in the rural sector â€" with more farmers expecting the agricultural economy to improve than those expecting it to worsen.

A comprehensive monitor of outlook and sentiment in Australian rural industries, the Rabobank Rural Confidence Survey questions approximately 1200 farmers across a wide range of commodities and geographical areas throughout Australia on a quarterly basis.

The latest survey, taken last month, found 48 per cent of farmers expected conditions to improve in the coming year, up from 42 per cent in the previous quarter. Only 14 per cent of farmers expect the agricultural economy to worsen, compared to 19 per cent last quarter.

Despite the improvement, and an upbeat outlook, Rabobank general manager Rural Australia Peter Knoblanche noted that several areas of the nation were still recovering from flood and cyclone damage and that it would be some time before this was complete.

"As well as being devastating for the communities worst hit, the floods and extreme weather events in Queensland, Victoria, WA and parts of New South Wales have been a set-back for some producers due to the impact on yields, crop losses and harvest delays," he said.

"However the majority of the farming sector in eastern and southern Australia is in a good position due to the additional rainfall and positive seasonal conditions."

Mr Knoblanche said the latest survey had seen a general lift in confidence as a result of high summer rainfall, while the majority of commodities were also enjoying strong prices. Sentiment was highest in those commodities with the strongest prices. Of those primary producers who expected conditions to improve over the next 12 months, 43 per cent nominated seasonal conditions as a major contributing factor, while rising commodity prices were also top of mind, cited by 40 per cent of respondents overall (up from 30 per cent last quarter).

"The results reflect exactly what we are seeing on the ground," Mr Knoblanche said. "Summer rainfall has positioned most producers very well as we head into the winter season. Sentiment is very much being driven by an expectation of continuing high commodity prices and, more so, an ability to capitalise on them. Looking at futures, and the underlying drivers of price, the industry has every reason to be confident about the year ahead."

"In many ways current conditions could be seen as optimal for the vast majority of producers," Mr Knoblanche said. "I can't remember the last time we had such a favourable summer season, coupled with record commodity prices. "And while the high Australian dollar has moderated the increase in returns realised by exporters, international prices are such that this is not causing too much anguish. On the other side of the coin, the high dollar also helps to mitigate the landed cost of farm inputs such as chemicals, fertiliser and fuel."

Mr Knoblanche said the high level of positive sentiment among farmers was also reflected in their investment intentions, with the survey showing 33 per cent looking to increase their levels of investment in their farm business over the next 12 months.

Farm business performance and income

In terms of farmers' own operations, the Rabobank survey found 52 per cent of respondents expected to see improved performance in their business over the next 12 months, compared to 49 per cent last quarter.

Overall, 52 per cent of respondents expected to have higher incomes over the next 12 months, compared with 48 per cent with that expectation in the previous survey. The number of producers expecting lower gross farm incomes decreased to 11 per cent, compared to 13 per cent last quarter.

The improvement in income expectations follows a generally favourable quarter for gross farm incomes in the final three months of 2010. A total of 57 per cent of Australian producers reported higher gross farm incomes for the period compared to the same period the previous year.

States

The survey found rural confidence was stronger in all states, with the largest increases observed in Western Australia, South Australia and Tasmania.

Mr Knoblanche said high confidence in these states had been mainly driven by strong commodity prices.

"All three states have benefited from the increase in lamb and sheep prices, while sentiment in WA and SA has been further boosted by very strong grain prices," he said. "WA recorded the biggest increase in confidence this quarter, a result driven by graziers and grain producers in the north who benefitted from favourable rain over summer. This had more than offset negative sentiment from the central region of the state which has experienced drought conditions."

Confidence amongst farmers in the eastern states remains in positive territory, despite persistent flood issues in Queensland and north-west Victoria, Mr Knoblanche said.

"Irrigators have been the big beneficiary of the rains with storages at near capacity and allocations expected to approach 100 per cent. Dryland producers have seen soil profiles fill and pastures remain green as we head into the winter season. Producers in several areas have commented that they cannot remember seeing green pasture in March, and I can tell you they wouldn't mind seeing it as we head into April as well."

Sentiment was found to be weakest in Queensland. The impacts of Cyclone Yasi, flooding and other extreme weather events continue to be felt.

"Prime sugar and banana-growing country has been left damaged, if not completely destroyed, in the north of the state. And there have been infrastructure issues delaying delivery of product to market," Mr Knoblanche said. "Beef prices have buoyed cattle producers however, with demand strengthening in global markets, particularly in developing regions."

Sectors

Sentiment remains positive across all sectors, with the exception of sugar. While the misfortune of sugar producers affected by Cyclone Yasi is well known, the inclement weather over summer has impacted all sugar producers. Mr Knoblanche said crop yields had been down due to lack of sunshine during the growing months, while harvests had been impacted with machinery has been unable to access waterlogged crops.

"Sugar prices have softened in 2011, however are still well up on those realised 12 months previously," he said. "The tight nature of global stocks should continue to support prices in the near term, although the crush in Brazil and Thailand may see further softening as we head into winter."

Mr Knoblanche noted almost every key agricultural sector had seen commodity price improvement over the past few months.

"While there has been much talk about wheat and livestock prices, natural fibres have also rallied," he said. "Cotton has broken records yet again with front month futures contracts trading above USD220c/lb. Wool has consolidated gains made in 2010, assisted by uncertainty surrounding low global supplies coupled with a pickup in demand from Western Europe."

Mr Knoblanche said dairy price increases had been more modest.

"However there has been plenty of activity in farmgate milk pricing with most processors lifting prices paid to farmers in the first quarter of 2011 and a general expectation of further milk price step-ups as the season draws to a close. A lingering concern for dairy producers though has been recent supermarket competition with milk pricing. Developments in this area will be watched with anxiety," he said.

Production expectations

The latest Rabobank survey also found production expectations over the next 18 months had increased across every major commodity. Mr Knoblanche said this was the first time an increase had been expected across all commodity groups, when producers had been questioned about production outlook.

"This result is reflective of generally favourable conditions across all commodities and provides further evidence of a very healthy and confident industry," he said.









The most robust study of its type in Australia, the Rabobank Rural Confidence Survey has been conducted since 2000 by an independent research organisation interviewing an average of 1200 farmers throughout the country each quarter. The next results are scheduled for release in June 2011.

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