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Rabobank rural survey shows strong dollar impacting Australian farmer confidence

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The latest quarterly Rural Confidence Survey by agribusiness banking specialist Rabobank  shows a fall in Australian rural confidence as the sustained strength of the Australian dollar takes its toll on export returns.

After a late rally last year, the rural confidence index is back in the negative, with more farmers now expecting conditions to deteriorate over the next 12 months compared with those expecting conditions to improve.

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

Rabobank’s rural survey found 28% of primary producers expecting the agricultural economy to worsen in the next 12 months compared to 20% previously. Only 16% expect conditions to improve against 24% last quarter while 52% expect conditions to remain stable. Of those expecting the agricultural economy to improve, 37% cited seasonal conditions as a driving factor.

Rabobank general manager Rural Australia Peter Knoblanche says that the fall in confidence ironically reflects the strength of the Australian economy with farmers becoming more concerned with the strong Australian dollar.

He explains that the dollar has been trading above parity to the US dollar for some time now, which has impacted the competitiveness of Australian exporters. The strong dollar has made Aussie exports less attractive in certain markets where products can be sourced from elsewhere at a better price.

Rabobank expects the Australian dollar to soften in the next three months on the back of a strengthening US dollar and lower terms of trade, but remaining above parity for the foreseeable future as investment flows into Australia remain strong.

On the agricultural economy worsening over the next 12 months, 40% respondents attributed their outlook to the strong Australian dollar while 32% nominated falling commodity prices and 19% cited overseas market conditions.

Some key agricultural commodities have also showed moderation in prices with over-supply in the global and domestic market causing grain prices to decline. Prices for soft commodities such as sheep meat and beef have also eased this quarter from their highs in 2011.

Farm business performance, income and investment intentions

Farmers’ expectations of their own business performance had also declined in this survey, but remained higher than their confidence in the overall agricultural economy.

The Rabobank survey found that 30% expected to see improved performance in their business over the next 12 months, down from 38% last quarter. While 13% of farmers expected their business performance to worsen (up from 9% previously), 55% of farmers expected the performance of their business to remain the same.

Income expectations have also fallen with 31% of respondents expecting to have higher incomes over the next 12 months (down from 39%) and 16% expecting lower gross farm incomes (up slightly from 13%). A total of 51% expected their income to remain the same.

Gross farm incomes have been favourable in the fourth quarter this year with 46% of Australian producers surveyed reporting higher incomes compared to the same period last year while 22% report the same and 30% lower.

Farmers’ investment intentions remain stable this quarter with a total of 91% intending to maintain or increase the level of investment in their business in the next 12 months.

States

The survey found that all states recorded a fall in confidence compared to the previous quarter.

Queensland farmers were found to be the most pessimistic in the nation with concerns about the dollar and uncertainties in government policies dampening the mood.

WA farmer confidence was in neutral territory with the same number of farmers expecting conditions to worsen or improve. While the yields of the last harvest have been high, the pressure of the high dollar and falling commodity prices in grain have chipped away at surpluses.

Graziers are relatively more upbeat with prices showing moderation but still firm for sheep, wool and beef.

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