Commodity prices, interest rates and drought bite

April 21, 2023 | 5 Min read
Australian farmers continue to ride the rollercoaster of seasons, commodity prices and economic factors, with rural sentiment at the start of 2023 dipping to its lowest level reported since late 2018.

Australian farmers continue to ride the rollercoaster of seasons, commodity prices and economic factors, with rural sentiment at the start of 2023 dipping to its lowest level reported since late 2018.

The latest quarterly Rabobank Rural Confidence Survey completed in February, found after rallying late last year, sentiment in the rural sector had fallen again this quarter as farmers continue to navigate a range of economic and financial uncertainties.

Western Australia and Tasmania, however, bucked the national trend, with producers in those states looking to the year ahead with increasing optimism.

Nationally, the number of farmers expecting the agricultural economy to improve over the coming 12 months dipped to 11 per cent in the first quarter of 2023, compared with 15 per cent in December 2022.

Although just over half of Australian farmers continue to expect business conditions to stay the same (51 per cent, marginally up on 50 per cent), more are anticipating conditions to worsen (36 per cent, up from 31 per cent).

The main factor driving those with negative outlook is falling commodity prices, a worry for 68 per cent of those expecting conditions to worsen – a significant increase on 21 per cent previously, while rising interest rates were also an increasing concern (20 per cent, up from 11 per cent).

While not currently ranked as a major driver of negative outlook, there were also signs emerging of a growing concern about a return to dry conditions.

There was some relief though around the high cost of farm inputs – such as fuel, fertiliser and energy – but this remains a concern for 35 per cent of farmers expecting conditions to worsen over the next 12 months (down from 49 per cent last quarter).

However, commodity prices were still cause for optimism among those farmers with a positive view on the year ahead.

Farmers who expect business conditions to improve were buoyed by those commodity prices which are still strong – particularly for dairy, cane and beef producers – with 55 per cent listing this as a reason for their positive outlook, a similar level to the previous quarter (56 per cent).

There was increased confidence in overseas markets/economies contributing to good economic conditions – nominated by 26 per cent as cause for their positive outlook (up from 18 per cent).

In overview, the latest survey reflects the combination of commodity prices, global economic challenges and high production costs facing farm businesses.

Despite having their resilience tested throughout 2022, most Australian farmers ended last year on a high, buoyed by seasonal conditions and high commodity prices which saw our industry break farm production value records for the third year in a row.

However, as we see the heat come off many commodities – albeit down from significant highs – farmers recognise conditions will start to return to more ‘normal’ levels.

This survey captures their realistic expectations that commodity prices will likely not return to the highs this year that we saw in the previous 12 months.

A comprehensive monitor of outlook and sentiment in Australian rural industries, the Rabobank Rural Confidence Survey questions an average of 1000 primary producers across a wide range of commodities and geographical areas throughout Australia on a quarterly basis.

The most robust study of its type in Australia, the Rabobank Rural Confidence Survey has been conducted since 2000 by an independent research organisation. The next results are scheduled for release in June 2023.

Peter Knoblanche is the Chairman of Rabo Australia Limited, and part of Rabobank’s global management team for wholesale and rural. He is responsible for the Rabobank ANZ region in his capacity of regional manager, Australia and New Zealand Region and CEO Rabobank Australia. He has over 30 years’ experience in both wholesale and rural banking, with various Australian and international banks and led Rabobank’s Australian rural banking operations for 10 years.

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