High global prices and a strong production outlook have seen record confidence levels in cotton and wheat, according to National Australia Bank’s (NAB) latest post farm gate Quarterly Agribusiness Survey.
NAB’s General Manager of Agribusiness, Khan Horne, said the outlook for agribusiness surged in the September quarter with the near and medium term outlook very strong.
“Conditions in the quarter were weaker, but the 3-month outlook for agribusiness is currently sitting at its highest level in almost 6 years, with the index up 19 points to 22 compared with the last survey,” Mr Horne said.
“In a dramatic turnaround from earlier in the year, confidence in wheat is at an all-time high. We expect that strength to remain for some time, with NAB forecasting a crop of 23.8 million tonnes and prices likely to be supported until at least next season.
“In a similar story, with increasing water allocations and prices pushing past 100USc/lb mark in September, confidence in cotton is the highest on record for this survey. Prices have increased since then and should remain solid through the next quarter.
“The index for post farm gate agribusiness conditions was down 8 points to 1 in September. This was a reflection of the impact of the high Australian dollar on input costs and an overall increase in overheads. Despite the fall, conditions remain in positive territory; suggesting that respondents generally reported positive business conditions.
“With the AUD rising, export sales pulled back following the gains reported in June, but respondents expect exports to pick up in the coming three months reflecting tight global supplies of agricultural commodities and positive demand.
“These expectations may be adjusted in the next quarter however, with the AUD pushing past parity in October,” he said.
Given the increase in optimism, capital expenditure plans picked up in the quarter, as an expected improvement in profitability and sales should allow producers to rebuild balance sheets and upgrade equipment. The index for capital expenditure plans increased 7 points to 25 in the September quarter.
The index for employment fell back 8 points to zero, following the sharp surge in the June quarter. Despite this result, employment levels in the sector remain high and respondents expect a sharp increase in employment during the spring harvest.
The Quarterly Agribusiness Survey and other reports from NAB’s Agribusiness economists can be found on the website at www.nab.com.au/agrireports.