46pc of farmers to expand farming operations: Rabobank Rural Confidence report

By Jasmine Peart
June 24 2022 - 10:30pm
The latest Rabobank Rural Confidence report has found that 91 per cent of Western Australian farmers were planning to increase or maintain their level of business investment in the next 12 months, compared to 88pc last quarter.


FARMER confidence is rising, with the number of Western Australian farmers expecting conditions to improve in the next 12 months increasing by 8 per cent to 26pc, while those expecting conditions to worsen halved to only 15pc, according to Rabobank's latest Rural Confidence report.

The report, for the June quarter, has also found that this confidence is flowing through to farmers' property decisions.

It found that 91pc of WA farmers were planning to increase or maintain their level of business investment in the next 12 months, compared to 88pc last quarter.

Out of these farmers, 46pc were planning to purchase property to expand their farming operation.

However, investing in the rural property market isn't as easy as it once was, with farmland prices at record levels and official bank interest rates now rising to help contain inflationary pressures.

National Australia Bank's latest Regional and Agribusiness Horizons report, released earlier this year, found that the median price paid per rural hectare had increased by up to 20pc over the past 12 months.

The University of Western Australia (UWA) professor of finance Raymond da Silva Rosa told Farm Weekly this week that farmland was a good investment, though interest rate rises could cause some potential purchasers to reconsider their investment.

"Until very recently, I would have said that (farmland) is a good buy, but with the increase in interest rates it's as risky as it's ever been," professor da Silva Rosa said.

"On the other hand, you expect prices to go up as there's a boom from rising demand for the product, so that will lift up land values."

Despite rising prices, professor da Silva Rosa said it remained a good time for farmers, who were considering expanding their operations, to invest.

"You've got to make a choice as a farmer whether you want to grow big or stay small," he said.

"If going big, now is a good time to buy, but then it's been that way for some time.

"The changes in interest rates aren't probably going to be the biggest drivers, it's going to be the inexorable trend towards bigger farms to make them more economical."

"Probably the biggest change will come, and has been for some time, from the consolidation of land.

"The big agricultural businesses are buying up the smaller farms and that is probably the biggest driver of land prices over anything else."

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This rapid price rise has pushed some farmers out of the market, along with creating intense competition between farmers looking to expand.

Rabobank WA regional manager Steve Kelly said conditions remained competitive for farmers looking to expand.

"Those farmers looking to expand through the purchase of additional farming land face the challenge of a very tight rural property market, with limited supply," Mr Kelly said.

"We are not expecting to see a significant change in WA's rural property availability until the spring selling season."

Mr Kelly said the reported rise in farmers' confidence was credited to a good start to the season, along with high commodity prices.

In April, the NAB Rural Commodities Index was more than 20pc higher than the same time in 2021, and the index continues to grow at a steady pace.

This has boosted confidence within the farming community, with 82pc of farmers agreeing it had an impact on their business decisions.

"Significant rain in late March in many cropping regions with some follow-up rain has seen the State's graingrowers beginning the season with an optimistic outlook," Mr Kelly said.

"In the main, we have enjoyed an excellent start to the 2022 season, where we have seen all the benefits of reasonable rainfall without the negative effects of frontal winds, and this has given graingrowers plenty of time to prepare for the season ahead.

"This great start to the season has given graingrowers the confidence to be able to take advantage of forward selling at historically-high prices because the crops are up and away."

UWA's Centre for Agricultural Economics and Development professor Ross Kingwell said the high confidence levels would also counteract high farming input costs.

"So high are grain prices and so favourable are current growing conditions that farmers are prepared to apply their usual appropriate levels of fertilisers and chemicals, despite the unusually high costs of these inputs," professor Kingwell said.

"Farmers' confidence is also buoyed by the fact that this is now the second or third consecutive favourable year for some farmers.

"These farmers have been able to pay off some debt and establish cash balances to help pay for the higher costs of crop inputs this year."

Eastern States wheat futures have recently traded as high as $475 per tonne, which is a new record.

This is underpinned by China's high demand for Australian wheat, with exports to China a massive 3.78 million tonnes at the end of April.

According to Rural Bank's Cropping Insight Report, wheat production is estimated to exceed 30 million tonnes this season.

Putting aside the grim consequences of the Russia/Ukraine war, Australian farmers were still feeling quite optimistic about its affect on grain prices.

A total of 48pc of respondents to the Rabobank survey believed there would be market benefits from the war, primarily in maintaining high commodity prices and in increasing demand for agricultural produce, due to Black Sea supply disruptions.

"Reductions in crop production in Ukraine, plus their difficulty of cost-efficiently exporting their grain has meant that a lot of formerly affordable Ukrainian grain is no longer available to international customers," professor Kingwell said.

"In addition, the difficulty and expense of shipping Russian grain has reduced its affordability.

"The ramifications are that the global demand for grain, in the face of dwindling stocks and lesser exports of grains, is placing sustained upward pressure on grain prices.

"Australian farmers are currently beneficiaries of these global changes, as Australia is one of the few places in the world that can offer affordable supplies of wheat, barley and canola."

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