The quarter one Rabobank Rural Confidence Survey found national rural confidence had slipped to a net reading of -9 per cent (down from 6 per cent in the previous survey) even before the outbreak of the war against Iran.
Mounting input costs were already weighing on the sector as a key concern for farmers, along with seasonal conditions due to a challenging summer.
Rabobank group executive for country banking Australia Marcel van Doremaele says – with the survey in the field prior to the current conflict in the Middle East – concerns about the cost and availability of farm inputs would now be figuring considerably higher in farmers’ minds, particularly moving into the winter cropping program.
“We’ve seen fuel and fertiliser markets and freight rates react to the Middle East conflict due to the impact on prices and threat to supply and this flows directly into Australian farm budgets, adding to inflationary pressures,” Marcel says.
“Disruptions in global fertiliser markets (particularly for nitrogen-based products) and higher shipping costs for imported inputs, combined with domestic fuel price volatility, are tightening margins at a time when many producers are already managing significant and sustained cost inflation,” he says.
“Elevated and unpredictable fertiliser and fuel pricing is adding another layer of cost pressure for cropping and livestock producers as they plan for the year ahead.”
Marcel says elevated fertiliser (and diesel) prices are likely to be cause for some farmers to adjust application practices and cropping programs.
“Some farmers are rethinking the application of nitrogen in particular as a result of high prices and some crop farmers are adjusting their cropping programs,” he says.
“For graziers, increased fuel prices add to costs, particularly for transport.”
Marcel says while the size and duration of the impacts of the Middle East conflict are not currently clear, the sector is facing a testing time.
“As we have seen before over the years, farmers have navigated geopolitical shocks and challenges such as droughts and floods, followed by adjustment periods,” he says.
“And these current challenges present themselves as a new test of the resiliency and adaptability of the country’s farmers and graziers.”
Marcel says the impact of these input challenges will likely vary between producers in the farm sector, and the bank will take a long-term approach working with clients as to assist and provide support.
The quarter one survey, completed last month, found while half of farmers nationally had expected conditions in the agricultural economy to remain stable over the next 12 months (at 50 per cent), an increasing number are preparing for conditions to decline – 28 per cent, compared with 22 per cent in quarter four last year.
The proportion of farmers with an optimistic view on the year ahead had also fallen to 19 per cent (from 27 per cent previously).
As well as input costs, concerns about seasonal conditions – following a dry summer in many regions, along with floods and bushfires in others – are shown to be weighing on farmer sentiment.
Commodity prices though were found to be, overall, a cause for optimism among the nation’s farmers in the survey, particularly among livestock producers.
Marcel says while variable, commodity market signals were overall providing some positivity for the sector.
“Finished cattle prices remain at historic highs – driven by strong global demand – while restocker cattle prices are around the five-year average,” he explains.
“Lamb and mutton prices are expected to remain around current high levels, and wool is also holding steady,” he says.
“Although we’ve seen global wheat prices across major future markets firm up in the past month driven by macroeconomic and supply-side factors, looking ahead there is expectation of volatility caused by seasonal factors as well as from the Middle East conflict.”
Oilseed prices have also firmed on stronger energy markets and global demand.
“There has also been a bounce in dairy commodity values, but all eyes are on the Middle East conflict as the region has become an increasingly important market for milk powders in recent years.
State sentiment has softened everywhere except South Australia.
Overall Tasmanian farmers remained the most optimistic in the nation.
Marcel Van Doremaele is group executive at Rabobank Australia Group
