Confidence returning to agriculture: Rabobank report

Australian producer sentiment has rallied heading into spring, following a mid-year dip.

The quarter three Rabobank Rural Confidence Survey, released on Monday, found sentiment experienced an upswing when it was administered last month, although farm sector confidence remained just shy of net positive levels – with still slightly more farmers holding a pessimistic outlook than those expecting a better year ahead.

Farmers started the year with a surge in optimism, but sentiment had fallen by mid-year due to the worryingly late – and in some cases no – autumn break for winter cropping regions, especially in Western Australia and South Australia.

Rabobank group executive for Country Banking Australia, Marcel van Doremaele said more promising market signals, particularly in the livestock sectors, along with positive seasonal conditions and production outlooks in many parts of the country, had resulted in farmers taking an overall more bullish view this quarter.

“Farmers are still managing challenging conditions in south-west Victoria and across South Australia which continue to put pressure on winter crops and feed for livestock. And grain growers in these regions are particularly holding hope for good spring rainfall to finish crops following the very dry winter," Mr van Doremaele said.

“The ENSO (El Niño Southern Oscillation) Outlook remains at La Niña watch – meaning there are signs La Niña may develop later in the year and the potential for a wetter spring has held promise during the survey period, which has helped confidence track back up.”

Mr van Doremaele said shifts in key commodity markets had also helped to boost farmer confidence this quarter.

“Livestock producers are more optimistic after improvements in cattle and sheep prices, and there are also positive signals for dairy production. Grain and cotton farmers though face more bearish conditions with global drivers putting downward pressure on prices,” he said.

“There are also encouraging economic drivers underpinning farmer sentiment, including interest rates, with market forecasts of cuts in the official cash rate next year. In addition, the high cost of farming inputs, such as fertiliser, has also been easing, which is especially critical to farmers’ bottom lines, taking into account the impact of depressed grain markets.

“So, some easing of economic pressures, combined with useful winter rainfall for those regions which received it, has seen many farmers are tracking towards the end of the year with a more positive mindset. Others though do remain glued to the outlook and in need of a wet spring to finish crops and replenish feed reserves to ease pressure on feeding livestock.”

Beef producers were encouraged by solid cattle prices, with improvements through July for cows and heavy steers. Young cattle prices are also starting to move up as the impact from global beef demand – especially from the US – flows back to the Australian market to help elevate prices. This pushed net confidence for the beef sector into positive territory this quarter (10%, up from -6%).

“Rabobank analysis points to cattle prices continuing to track upwards in coming months,” Mr van Doremaele said.

Sheep producer confidence took a leap forward this quarter, riding on the back of an improved seasonal outlook and commodity prices.

“Net sentiment tipped back into positive territory (1%, was -37%) for the sheep industry, with more favourable seasonal conditions in many regions and the prospect of stronger prices giving them hope for the coming year,” Mr van Doremaele said.

“However, sheep producers remain very concerned about government policies – especially the threat to live export – with WA’s sheep industry in particular bearing the brunt on the long-awaited, finally received hard deadline for live exporting sheep, which was handed down prior to this survey.”

Confidence among the nation’s grain growers climbed, but remained at net negative levels, at -19%. Grain growers had relief from improved seasonal conditions and some easing in input prices and were also optimistic of a turnaround in prices – despite the current bearish conditions for wheat and barley and softer prices for canola.

“Favourable seasonal conditions in NSW and Queensland, supported by a better-than-anticipated winter growing season in Western Australia, is driving crop production with ABARES currently forecasting national winter production to increase to 55.2 million tonnes in 2024-25 – which is 17% above the 10-year average,” Mr van Doremaele said.

“However, growers in South Australia and western and northern Victoria have recalibrated their crop expectations after unfavourable growing conditions – many are simply hoping to get their seed back.

“And with domestic wheat prices pressured by a combination of the downward trend in global prices combined with promising yield prospects in other Australian graingrowing states, this will have implications for margins for growers.”

Appetite for rural land purchase remained relatively stable this quarter, with 12% (was 11%) of farmers nationally expressing interest in expanding their farming operation.

Confidence by state

While there was an upturn in farmer confidence across all states, sentiment levels varied considerably.

Tasmanian farmers are the most optimistic in the country, with net confidence levels jumping to 40%, up from -16% just three months ago. Improved cattle and sheep markets supported the improved outlook, while prolonged dry conditions were broken by some useful winter falls of rain, although many parts of the state have more recently grappled with an overabundance of rain in recent weeks.

NSW was the only other state to climb back into net positive confidence levels, lifting to 1% from -11% in the previous quarter. The move back into positive territory is founded on easing concerns about drought and commodity prices in the state.

While many Victorian farmers are still managing unusually dry seasonal conditions in parts of the state, a reasonable season in northern regions helped to drive a lift in farmer confidence. A quarter of Victorian farmers are now hopeful conditions will improve, pushing net confidence levels from -31% to -4% cent this quarter.

Queensland’s rural confidence climbed thanks to solid seasonal conditions and rising commodity prices. Net confidence now sits at -4%, up from -13%, supported by expectations of typical seasonal rainfall conditions in coming months.

South Australia’s rural sector reported the lowest sentiment in the country – subdued by below-average winter seasonal conditions – but net confidence still lifted from -38% to now sit at -27%. Confidence in red meat markets provides a much-needed shining light in a state where livestock producers are reassessing feed budgets and grain growers are recalibrating their yield expectations as they roll towards harvest.

Farmer confidence lifted in Western Australia, to -8% from a net -21% last quarter. Increased concerns about the threat to live export – now that a deadline has been formally announced for the end of the live sheep trade – were offset by seasonal relief from much-needed rainfall which fell across the state’s wheatbelt during winter and improved domestic sheep and cattle markets.