Ag's getting tough, but farmers keep investing in solid outlook

NAB, Rabobank say confidence falling but ag spending still solid


Almost 80 per cent of farmers still plan to lift or maintain current farm investment spending in the difficult year ahead


Nasty weather conditions are biting more Australian farmers and may well stay bad for months, but almost 80 per cent still plan to lift or maintain current farm investment spending in the difficult year ahead.

Even in NSW, where more than half the state's farmers foresee next year being even tougher than droughty 2019, less than a third plan to cut spending in 2020, according to Rabobank.

Only eight per cent intend cutting spending in South Australia.

In fact, despite the drought-weary farm sector enduring the driest spring on record and early summer bushfire emergencies in all states, overall confidence levels are actually much stronger than in previous drought years in the past two decades.

The past 11 months may have been the driest since way back in 1902, but farmer sentiment was still notably lower in 2002 and 2006.

Surveys just released by Rabobank and National Australia Bank have highlighted a national flattening in farmer confidence levels.

Investment intentions in Western Australia and South Australia well and truly outstripping the other parts of Australia, - Peter Knoblanche, Rabobank

Two in every five of the 1000 farmers surveyed by Rabobank felt agricultural economic conditions would deteriorate in the year ahead, primarily because 2020 would start with a hotter and drier than average summer according to weather forecasts.

However, investment intentions remained comparatively strong in Victoria, Tasmania, Western Australia, SA.

NSW most negative

The nation's most concerned farmers were in NSW, where 55pc anticipated worsening agricultural economic conditions, and 99pc of those with a negative expectations blamed the lingering hard season for their pessimism.

Net confidence levels in NSW, now down to -42pc,- were more than twice as low as Queensland, with only 13pc of NSW producers expecting better conditions.

Interestingly, confidence levels in long-suffering, Queensland defied the national trend and held stable, albeit at already subdued levels.

"Concerns about the weather spread across all states," said Rabobank's Australian and New Zealand managing director, Peter Knoblanche.

Peter Knoblanche

Peter Knoblanche

"Farmers in southern Victoria and northern Tasmania were buoyed by late-spring rains, while Queensland's channel country is experiencing good pasture growth as flood waters make their way through the area."

While early season hopes for WA's grain crop had been dashed by a hot spring, below average rainfall and frost, and SA croppers also had a disappointing end to the season, the weather setbacks did little to dent longer-term optimism.

"Investment intentions in both states well and truly outstripped other parts of Australia," Mr Knoblanche said.

Investment plans still up

In fact, 26pc of WA farmers planned to lift their investment next year, while almost two thirds would maintain current spending levels, and similarly in SA, 24pc looked to invest more and 68pc were retaining current spending plans.

In Victoria and Tasmania 85pc and 87pc of farmers, respectively, would either retain or increase their investment levels in 2020.

This compared to NSW and Queensland where a more modest 15pc and 13pc, respectively, were looking to lift investment, but 53pc and 66pc wanted to maintain current levels.


NAB's agribusiness economist, Phin Ziebell, said improved Victorian seasonal conditions, supported by the strong lamb and mutton sector, meant Victoria recorded that bank's only positive confidence levels (at plus 21) on its national agribusiness survey index, which had drifted down to minus seven.

"The failure of winter crops in NSW and Queensland, combined with the cost of feeding livestock, led to low confidence there, and a soft finish to WA's winter crop saw it go from an outperformer to having the second weakest confidence levels overall in the fourth quarter," he said.

However, NAB bankers still expected increased capital expenditure in WA and SA in the next three months.

NAB's agribusiness customer executive, Neil Findlay, said the bank's index results, based on banker observations, also confirmed the financial and wellbeing impacts of prolonged drought were closely linked.

"This data reinforces the importance of close relationships between our agribusiness bankers and customers as they work through these tough times together," he said.

Strong industry fundamentals

Rabobank's Mr Knoblanche noted the fundamentals of the agribusiness sector were still solid, with strong demand and prices for many commodities, such as beef, sheepmeat, wool, dairy, grains and cotton.

About a quarter of survey respondents still expected higher gross farm incomes in 2020, while the number expecting a weaker financial result grew slightly from 34pc to 39pc, with 34pc expecting little change.

Lamb prices have fallen from their record levels earlier this year, but still represent excellent value for producers - Neil Findlay, National Australia Bank

However, sentiment across all surveyed commodity sectors was down, with cotton grower mood at a six-year low.

"Given the season, with little or no water allocation across all cotton-growing regions and no significant moisture profile for dryland plantings, it's no surprise confidence has fallen away significantly," Mr Knoblanche said.

"Even in the Murrumbidgee, Lachlan and Murray, only 15,000 hectares has gone in, well below 50,000 last year, with the national crop forecast to come in below 750,000 bales."

Confidence in sugar also lagged other sectors after a below-average local cane harvest and prices suppressed by India's export program and heavy Asian stocks.

Dairy disparity

Dairy's confidence last quarter turned into a retreat for December despite southern regions in a better position to capitalise on record-high milk prices.

Mr Knoblanche said conditions remained extremely challenging in other regions where margins were.

That disparity was evident in the survey results, with 80pc Tasmanian dairy farmers and 41pc in Victoria expecting higher gross farm income in 2020, compared with just 6pc in NSW.

Grain sector sentiment was hurt by frost and heat in the west, and hot, dry conditions in the east.

"Prices remain very strong for beef and sheepmeat and there is considerable upside when seasons improve, given livestock numbers are at their lowest level in over two decades," Mr Knoblanche said.

"But the frustration many producers face is they simply don't have the stock - or are trying to hold on to their core breeders - to take advantage of the high prices."

Lamb leads commodity mood

NAB bankers reported lamb and mutton sector expectations as strongest of all commodity sectors, with an index rating of 30, followed by aquaculture (8), mixed cropping and livestock (7).

"Lamb prices have fallen from their record levels earlier this year, but still represent excellent value for producers," Mr Findlay said.

Wool sector confidence dropped with the decline in prices from their early 2019 peaks, China-US trade tensions and tough NSW seasonal conditions, but wool was still "a much more positive price story than a couple of years ago".

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