Productivity and profits underpin sustained confidence in Australia’s farm sector

| March 15, 2021

Australian farmers are forecasting another productive and profitable year ahead, with rural sentiment still at historically-high levels thanks to “perfect” summer conditions in much of the nation’s east and exceptionally strong commodity prices.

The latest quarterly Rabobank Rural Confidence Survey, released today, reveals ongoing optimism among Australian farmers who have not only rebounded from significant drought conditions a year ago, but also stared down immense uncertainty and, in some sectors, market volatility as a result of the COVID-19 pandemic.

The survey found while overall net confidence had eased slightly from December’s stellar reading, Australian farmer sentiment was still at one of the top 10 levels in the survey’s 20-year history.

With promising seasonal conditions heading into autumn and strong demand continuing to underpin livestock prices, Australian farmers have also revised up their income expectations for 2021 and this is driving a major investment injection into farm business productivity over the year ahead.

Meanwhile, so positive are business conditions in Australian agriculture right now that the Rural Confidence Survey’s farm viability index – measuring farmers’ assessments of their own business viability – continues to climb, eclipsing the highest level set last quarter to sit at a new record.

The survey, completed last month, found 39 per cent of farmers nationally still expect conditions in the agricultural economy to improve in the coming year (from 43 per cent in the previous quarter), while 51 per cent expect them to remain stable.

Only seven per cent of farmers in the latest survey had a pessimistic outlook on the year ahead (down fractionally on eight per cent last quarter).

The survey showed prevailing optimism across all agricultural sectors, with sentiment particularly positive among grain and cotton producers.

Rising commodity prices and strong demand were the primary drivers of confidence in this quarter’s survey – cited by 68 per cent of those farmers forecasting conditions to improve (compared with 54 per cent last quarter).

The continuing run of good seasonal conditions, helped along by consistent summer rain and mild temperatures in many regions, is also helping keep confidence high – with the season cited by 62 per cent of farmers expecting conditions to improve this year.

For those farmers who were expecting a deterioration in the agricultural economy in the year ahead, dry conditions were the primary worry – with the strongest concerns expressed by farmers in Western Australia and Queensland.

While a turnaround in seasonal conditions had dramatically boosted Australian farmer confidence last year, uncertainty caused by COVID-19 had taken the edge off sentiment, especially in the middle of 2020. This quarter, however, just 10 per cent of farmers expecting a deterioration in conditions cited COVID as a reason for their concerns.

Rabobank Australia CEO Peter Knoblanche said 2020 had delivered a major turnaround in fortunes for many Australian farmers and the prospect of another good year was underpinning solid, long-term confidence in the sector.

“The recovery from drought and the return to production over the past 12 months has been extraordinary, despite the uncertainties around COVID-19,” he said.

“Australian grain growers delivered a record wheat harvest and near-record total winter grain harvest last season and there are promising early signs as farmers start making plans to plant this year’s crop.

“Livestock prices are breaking all sorts of records because the demand for sheep and cattle is so strong and there just aren’t the numbers to meet that demand. That is proving a challenge to those farmers trying to rebuild herd and flock numbers after the drought but providing good returns for farmers who held onto stock through the dry years.

“This year it seems all the fundamentals are lining up. We’ve had near-perfect seasonal conditions over summer for much of the country and commodity prices are very solid. Combined with low interest-rates and a number of government incentives, farmers are generally speaking in a good place right now.”

Mr Knoblanche said, however, there were parts of Western Australia and Queensland where summer conditions had been tough. But, despite the lack of rain, there was still optimism in those regions, primarily due to the underlying confidence in agriculture more broadly and solid commodity prices.

He said one of the most exciting developments unfolding in the sector was the record levels of investment, with farmers capitalising on high returns, excellent seasons and favourable business conditions to build greater productivity and profitability into their enterprises.

Mr Knoblanche said Australian agriculture had been spared much of the devastation from COVID-19 felt throughout the global economy, however workforce constraints, especially in the wool and horticulture sectors, were still a concern for some farmers this year, while market volatility, particularly in export markets dependent on China, was also behind nervousness in some sectors.