Caution creeps into Australian farm sector

Australia's agricultural sector has been hit on all fronts.

The ‘rise and rise’ of input costs and fallout from the war in Ukraine are weighing on sentiment in Australia’s agricultural sector, with farmer confidence declining in the latest quarter.

Results of the quarter two Rabobank Rural Confidence Survey, released this month, reveal optimism about high agricultural commodity prices and the prospect of a third consecutive bumper grains harvest has been reined in by the increasing cost of vital farm inputs such as fertiliser, fuel, freight and machinery and broader inflationary pressures in the Australian economy.

In addition, the latest survey reveals 50 per cent of Australian farmers believe the ongoing conflict between Russia and Ukraine will have a negative impact on farm businesses, while 25 per cent expect the effect could be positive.

While farm income projections for the 12 months ahead remain stable, the number of farmers looking to increase investment has declined slightly this quarter.

The latest survey, completed last month, found 28 per cent of Australia’s farmers now expect business conditions to improve in the coming 12 months (down slightly from 31 per cent with that view in the previous quarter), while 16 per cent are anticipating a deterioration (from 14 per cent previously).

More than half (53 per cent) expect business conditions to remain stable in the year ahead.

This marks three consecutive quarterly declines in net rural confidence and brings farmer sentiment back to levels last seen in June 2020, after the first pandemic lockdown.

Confidence is highest in the cotton and grain sectors, while also very strong among dairy producers, with high prices combined with excellent seasonal conditions providing the perfect setting for those three industries.

Livestock sector confidence has eased, but strong commodity prices are helping stabilise sentiment.

Rabobank Australia CEO Peter Knoblanche said farmers had been enjoying high agricultural commodity prices and generally-excellent seasonal conditions in many parts of the country for more than two years, but many in the sector were now facing considerable margin pressure with input costs rising on all fronts.

He said the healthy returns of the past two years had put farmers in a strong financial position and many have invested in new technology, machinery and equipment.

“The benefits of those investments are certainly helping farmers create some efficiencies, but the cost pressure is not easing and producers definitely need those higher commodity prices in order to meet rising input costs,” he said.

The latest survey found the expectation of rising commodity prices remains the main driver of optimism among farmers with a positive outlook, while 62 per cent of those expecting conditions to deteriorate cited rising input costs as a key cause for concern, ahead of falling commodity prices (27 per cent), overseas markets (15 per cent) and labour shortages (nine per cent).

Mr Knoblanche said the Russia-Ukraine war was also hanging over the sector, with its impacts on key inputs of fuel and fertiliser sending prices for both skyrocketing, cutting farmer margins.