Global food shortages caused by Russia's war in Ukraine are giving many Australian farmers plenty of reasons to feel bullish about market prospects for next financial year, but farm sector profit margins are another story.
Despite excellent seasonal conditions, strong agricultural commodity prices and healthy balance sheets across the sector, Rabobank says producers are increasingly uneasy about inflated production costs.
"Producers definitely need those higher commodity prices in order to meet rising input costs," said the agribusiness lender's Australian chief executive officer, Peter Knoblanche.
While 53 per cent of farmers expected their overall business conditions to be relatively stable in 2022-23 and 28pc believed conditions would even get better, Rabobank found caution had started eroding longer term expectations and cooling some farm investment intentions.
In fact, half the farmers surveyed for Rabobank's latest rural confidence report expected the Russia-Ukraine conflict would have a negative impact on their business in the year ahead, primarily because of higher fertiliser, freight, machinery and fuel prices.
The quarterly survey found industry optimism about high farm commodity prices and a potential third consecutive bumper grain harvest was now being reined in by the rise and rise of vital farm input costs, plus broader inflationary pressure in the Australian economy.
Although 25pc of farmers felt the Ukraine conflict could be positive for keeping global commodity prices high, these views were largely within the grain sector.
More than 60pc of all survey respondents worried about the war's impact on fertiliser and freight costs, while almost half were concerned by higher fuel costs.
Two thirds of dairy farmers and 56pc of beef producers felt they would be hurt by higher energy, fuel and other input cost rises attributed to the conflict.
Subsequently, the number of farmers tipping a better business outlook dipped about three percentage points in the past quarter and those foreseeing conditions worsening had increased slightly, bringing overall farmer sentiment back to levels last seen two years ago.
Mr Knoblanche said Russia's war was cutting margins in a range of sectors, exacerbating farm cost and supply issues already in play last year.
Tighter EU sanctions
"As the next round of EU sanctions come into force, there is a lot of caution among farmers about what this will mean for the longer term, which is flowing through to lower levels of optimism," he said.
Yet, despite the caution being felt in the sector right now, Australian farmers were "in a good place".
Australia's most confident farmers are in NSW with that state's grain and cotton producers representing the most optimistic sectors.
Grain prospects also helped a West Australian confidence rebound, while the mood edged up in Victoria and South Australia.
However, Rabobank said expectations of further improvements in crop sector conditions were waning, particularly where unusually wet conditions had challenged croppers trying to harvest cotton and summer grains, or forced winter crops to be re-sown.
Mr Knoblanche said historic cotton prices had been the silver lining during the wet cotton harvest, while excellent water availability was also helping underpin long-term optimism.
Dairy sector confidence also stood out, with almost 60pc of farmers expecting income rises in the coming year.
More than three quarters of dairy farmers felt current good conditions would continue, or improve, on the back of gross farm income expectations now at their highest point in two years.
Confidence and investment intentions among sheep and beef producers dipped from the March quarter, again largely due to rising input costs and falling commodity prices.
Rabobank believed overall farm investment would largely remain at current levels, with 61pc of survey respondents maintaining their spending plans, while 33pc intended to boost spending on their business in 2022-23.
On-farm infrastructure was the main focus for those increasing their investment, although 23pc of those with more spending planned were looking to buy more land.
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