The Bush: Rural Australia Maintains High Confidence Levels

Australian farmers remain highly confident about the outlook as they approach the winter cropping season (mostly for wheat, the most important crop of all).

That can be put down to a combination of good growing conditions after the La Nina episode and high world prices for many commodities, especially cotton and grains.

But exporters are worried about the continued strength of the Australian dollar.

But those concerns could disappear if the world prices for wheat (and other grains) surge because of the continuing drought in parts of China and the growing big dry across France, parts of the Italy, the UK, Germany as well a combination of very dry and very wet conditions in parts of the grain growing heartland of the US.

Wheat prices have yet to move higher like they did after the Russian wheat crop was hit hard by a terrible drought last year. Russia will lift its ban on wheat exports from the start of next month.

But crop forecasters are worried that world wheat harvests and stocks are under pressure. Ironically producers such as Australia look like being well placed to benefit with the good weather conditions guaranteeing a sizeable crop.

Rabobank Australia released its quarterly rural confidence survey yesterday which questioned about 1200 farmers across Australia.

Rabobank general manager, rural Australia, Peter Knoblanche, said in the report that many farmers had received abundant summer rain and a top-up in autumn, which was good for the start of the winter cropping season.

"That said, as we are at the beginning of the season, Farmers are still exercising caution in their outlook as more rain will be needed in the coming months to produce high yields."

The survey found that confidence had moderated compared to the prior quarter, but was at the highest level recorded for the second quarter since 2001.

The report said the high commodity prices and top-up autumn rainfall had "encouraged optimism" and "cotton producers (were) the most confident sector in the nation".

The two factors had combined to lift rural confidence to the highest level in 10 years for a second quarter.

Of those primary producers who expected conditions to improve over the next 12 months, 61% cited rising commodity prices as a major contributing factor, while favourable seasonal conditions was also top of mind, mentioned by 48%.

"Shortage in supply, coupled with strong demand, is keeping commodity prices relatively firm for beef, sheep and grain," Mr Knoblanche said.

"Commodity prices have tempered slightly from March's record highs, but are still strong in comparison to the same period last year. However, the rise of the Australian dollar against the US dollar is starting to cause some concern for exporters."

The report said 42% of farmers surveyed were expecting conditions to improve in the coming year, compared to 48% per cent in the prior quarter. 12% of farmers expected the agricultural sector to worsen, with nearly one-third blaming the rising Australian dollar, compared to 10% who mentioned currency concerns in the prior quarter.

43% of farmers expected conditions to remain the same, compared to 34% in the previous quarter.

The survey found that 51% of farmers expected to have higher incomes over the next 12 months and 10% expected a lower income.

Confidence was still high in NSW, Victoria, South Australia and Western Australia, despite a weakening of sentiment compared to the prior quarter.

Sentiment in Queensland and Tasmania lifted.

Farmers in Queensland were more positive as the state began to recover from floods and cyclones, but confidence was still the weakest in the nation.

Confidence was highest in the cotton, sheep and dairy sectors.

"Prices for cotton are still above the 20-year average and strong demand growth, along with good water availability, means the outlook for producers is positive," Mr Knoblanche said.

Farmers supplying lamb and mutton were still highly confident, despite the strong Australian dollar affecting prices.

Nonetheless, prices were still strong compared to 12 months ago as a result of restricted supply and strong demand from re-stockers.

Sugar producers were the least confident of all farmers, which is understandable given the way prices have collapsed from 30 year highs well above 30 USc a pound late last year to around 23 USc a pound in New York last week.