The good times keep rolling for farmers, but rising input costs and anxiety about a possible foot and mouth disease outbreak are undermining farm sector optimism.
While most farm balance sheets are extraordinarily robust and the agribusiness sector is in great shape thanks to two years of good seasons and strong commodity prices, farmers are getting nervous about the year ahead.
Mounting fuel, fertiliser, energy and building materials costs; rising interest rates; concerns about commodity prices starting to fall, and the heightened threat of livestock diseases such as FMD and lumpy skin disease have pushed rural confidence levels into negative territory for the first time since December 2019.
Rabobank's latest quarterly study of the farm sector's mood found confidence was still particularly upbeat among cotton and dairy producers, but it had halved in the grain sector where only 22pc of croppers tipped better conditions.
More cautious
The livestock sector was even more cautious.
Just 10pc of beef producers expected conditions to improve this financial year - down from 25pc in June - and only 12pc of sheep producers were optimistic about their circumstances going into 2023.
The results coincided with National Australia Bank's agricultural commodities index posting its second consecutive month of lower prices, down 1.8pc in August.
Nationally, Rabobank noted those expecting agribusiness conditions to improve on last year's performance had slipped from 28pc to just 14pc in the space of three months, and those expecting a deterioration were well up from 16pc in June to 36pc in September.
However, 43pc of the 1000 farmers surveyed Australia-wide still felt conditions should remain the same in the year ahead.
Across the industry, farm sector investment intentions were still encouraging, albeit down on last quarter.
Rabobank's survey showed 25pc of farmers intended to further increase investment in their farm businesses, but this was down from 40pc in January.
A further 60pc planned to maintain current investment levels.
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Rabobank chief executive officer, Peter Knoblanche, noted a growing trend towards new technology investment by the 44pc who were lifting investment spending.
Almost three quarters of those spending money on new investments had on-farm infrastructure as a priority, followed by new plant and equipment purchases, while 25pc wanted more property.
Overall income expectations were relatively stable, with 42pc expecting their gross farm incomes to stay the same, while 27pc expected a rise.
Good prices, seasons
Above-average commodity prices and good seasonal conditions were dominant factors underpinning positive sentiment in the industry.
However, of those who felt farm business conditions would slide in the year ahead, 44pc cited higher input prices, 40pc were concerned about commodity prices falls and 39pc were worried about FMD.
In fact, Rabobank found 85pc of all farmers were extremely concerned about the threat of FMD landing in Australia from and its potential impact on our agricultural industry.
Mr Knoblanche, said the sector was in a very healthy state financially, but FMD was one of several challenging or concerning factors now clouding the outlook.
"Long term, I think farmers are still very confident about agriculture," Mr Knoblanche said.
"There is good domestic and worldwide demand for our rural commodities, productivity and profitability are high and farmers have done very well rebuilding after the drought and building greater resilience into their businesses.
"However, margins are starting to come under pressure and farmers are carefully monitoring and managing those costs.
"At a more localised level, ongoing wet conditions, especially in NSW and Victoria, have presented challenges for livestock and grains producers in specific regions."
Fertiliser rising
NAB senior agribusiness economist, Phin Ziebell, said fertiliser prices were below recent peaks, but there were signs of a re-emergence of price growth, presenting a challenge to agriculture.
"NAB's fertiliser index increased 7.5pc in August and is now around 60pc higher than a year ago," he said.
"Natural gas represents a major challenge to the global fertiliser outlook as Russia has imperilled European gas supplies coming into winter.
"Oil prices remain choppy, with diesel yet to see declines much below $2/litre at the bowser."
Meanwhile, local feed grain prices continued to fall, down another 4.9pc in August and now 14.5pc below their June peaks as global recession fears eroded grain prices, however international markets may recover given challenging conditions across many growing regions.
Upbeat Queensland
Despite the beef industry's unease about livestock disease issues, Queensland farmers are the most optimistic in Australia and their investment intentions are still solid.
Rabobank found almost 19pc of Queenslanders see agribusiness conditions rising in 2023 (albeit down from 28pc in June) and 44pc expect stable conditions.
Tasmanian farmers have the strongest outlook for increased income and business investment with 93pc looking to increase or maintain their spending in the next 12 months.
In South Australia, in the wake of a good season cropping break, 74pc of farmers still expected their gross farm income to be as good or better than the past year, but rising costs were listed by more than half of SA farmers as reason for them expecting conditions to worsen.
Excellent seasonal conditions and record dairy prices in Victoria were being offset by concerns around FMD and rising input costs, with those expecting conditions to improve over the year ahead halving to just 14pc, while 40pc are bracing for a deterioration.
Sentiment dampened
In NSW just 30 months on from severe drought, seasonal challenges from above average rainfall in some areas, plus FMD concerns, have tempered sentiment.
Although 43pc of NSW farmers expected little change to business conditions, just 13pc saw an improvement and 38pc tip conditions will deteriorate.
Western Australia concerns about high operating costs and lower agricultural commodity prices have taken the edge off a potentially stellar agricultural season.
Just one-in-10 WA farmers expected the rural economy to improve in the coming year, compared with one in four last quarter.
However, their appetite for land purchases remained the highest in the country.
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