Meanwhile, the third leg of the National Australia’s Bank’s confidence surveys each quarter is the report on confidence and conditions in agri-businesses: both before and after the farm gate.
And the latest survey for the March quarter shows there’s a curious "we’ll be rooned but things are looking up" dichotomy which some how sums up attitudes in rural areas some times.
But this time around it’s more important than for several years: the last two and a bit years have been pretty bad for rural and regional areas with the drought, the wine bust and the damage to grain crops, offset by the beef and sheep meat boom and of course the resources booms in parts of rural Queensland, Western Australia and parts of South Australia and NSW.
But with generally good rain (and more needed in the next few months) there are hopes the impact of the drought will fade and winter grain crops in particular will flourish and catch the world-wide price boom.
Winter grain crop plantings are now underway and Queensland and NSW might be looking for a return to good harvests, if sufficient rain falls in the next six weeks.
We will know by around August how the progress of the wheat, canola, barley and pulses crops are going. Last year’s crops started well but faded as rain was light to non existent for much of late autumn, winter and spring. The wheat crop ended up around 13 million tonnes, compared to just over 9 million the year before. But the forecast for 2007-08 was for a crop of between 25 to 26 million tonnes.
We can all hope, but forecasts are looking for a very sharp improvement in the terms of trade on rural products as quantity rises, along with higher returns from the world prices.
While iron ore, coal and perhaps oil and gas receipts are forecast to surge later this year because of higher prices, rural Australia will be adding its bit, especially from summer 2008 onwards, into next year.
It will be great news for the bush and regional areas, but another source of concern for the Reserve Bank as it ponders the direction of interest rates over the next few months.
That’s why the NAB’s Quarterly Agribusiness Surveys are important, because, like their more general business survey (the March quarter was issued Tuesday), they give a handy insight into expectations and the hard to measure sentiment and confidence levels of those in business.
The NAB said yesterday that the March survey highlights that agribusiness conditions (post-farm gate production and processing) deteriorated in the March quarter 2008, largely due to deterioration in trading conditions and poor profitability.
"The deterioration in current conditions was reported across most sub-sectors within agribusiness, with declines reported in food manufacturing and wholesaling, as rising raw material and fuel costs resulted in a fall in profitability performance," the bank said in a statement.
"Drought remained a key concern for businesses post farm gate, with 11% of respondents citing this as a drag on current trading conditions. Against that, increased customer confidence and demand continue to underpin trading conditions with 21% of firms citing this as the positive driver of current conditions."
But looking to the near term, the NAB said agribusiness respondents to the survey "anticipate a pick up in business conditions, underpinned by an expected improvement in profitability performance and trading conditions.
"Agribusiness respondents’ outlook for the next 12 months remains relatively optimistic, following a 6 point increase to 32 index points in the latest survey. Respondents remain concerned with the relatively high exchange rates and interest rates, with 14% and 11% of respondents citing these factors as the main drag on their profitability outlook.
"Demand continues to be reported as the major concern for agribusiness, with 36 per cent of respondents expecting a lack of demand to be a constraint to profitability over the next twelve months. For 7 per cent of respondents, the drought remains the key constraint to profitability — down from 18 per cent in the December quarter — with 6 per cent concerned about sourcing suitable labour.
"Above average rainfall in many areas during the March quarter and expectations of a rebound in farm production in 2008-09 boosted agribusiness confidence in major commodities and suppliers.
"In terms of commodities, confidence in wheat increased (up 49 points to an index of 48) as high international wheat prices and good summer rainfall boosted expectations of an expansion in the area planted to wheat in 2008-09.
"The improved seasonal conditions, particularly in northern New South Wales and Queensland, lifted confidence in beef (up 22 points to 19) and cotton (up 20 points to 7).
"Confidence in dairy also increased, reflecting higher milk prices and increased fodder production in key dairy producing regions (up 18 points to 25).
"Confidence in sugar increased (up 21 points to an index of 11) as prices increased in line with an increased demand for sugar used for ethanol production. In terms of suppliers, the forecast increase in farm production in 2008-09 flowed through to confidence in farm equipment and chemicals (up 21 and 27 points respectively to 21 and 42).
"Despite the improved confidence in major commodities and suppliers, agribusiness respondents remain cautious about their own business outlook, with confidence (post farm gate) increasing only one point from zero to an index of one."
So expectations are on the
