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Increasing Commodity Prices Boost Farmers’ Morale

Exporters are storing up cotton in preparation for the potential easing of ties with Beijing. Australian farmer confidence has slightly improved due to reduced concerns about commodity prices and input costs. However, overall confidence remains in negative territory. The latest Rabobank Rural Confidence Survey shows that confidence nationwide has risen from -25 percent in the first quarter of 2023 (the lowest level since late 2018) to -22 percent currently. While approximately half of farmers expect no change in the performance of the Australian agricultural economy over the next year, around 13 percent anticipate conditions to improve, and a slightly smaller percentage expect conditions to worsen. Fewer farmers are concerned about falling commodity prices or rising input costs compared to the previous quarter. However, more farmers are worried about government intervention, with some attributing their apprehension to the future of trade. The more optimistic farmers are buoyed by improved markets, with 65 percent citing rising commodity prices as a driver of confidence. Tasmania and Western Australia were the only states to experience a decline in confidence. Cotton is an exception to the overall decline in confidence, with growers showing increasing optimism. Net confidence in the cotton industry has risen from -20 percent to five percent. Chinese warehouses are stockpiling Australian cotton, betting that the three-year ban imposed by the Chinese Communist Party (CCP) will soon be lifted as diplomatic ties between the two countries improve. Chinese customs data reveals that from January to July 2023, 43,364 metric tons of Australian cotton entered bonded warehouses in China, doubling the figure for the whole of 2022. China National Cotton Group Corp, a state-owned company, is among the shippers. The ban on Australian cotton purchases by Chinese mills was implemented in October 2020, along with restrictions on other exports such as barley, coal, and wine, following a call by former Prime Minister Scott Morrison for an independent inquiry into the origins of COVID-19. Diplomatic relations have improved since the election of Prime Minister Anthony Albanese’s Labor government in May 2022. Albanese has confirmed his intention to visit China by Christmas in an effort to ease trade sanctions, becoming the first Australian prime minister to visit China in seven years. In line with concerns about commodity prices and the seasonal outlook, over half of Australian farmers surveyed expect a decrease in their gross farm income in the coming year, while only 14 percent anticipate an increase. The survey also shows that more producers plan to reduce their investment in the next year, with net investment intentions reaching the fourth lowest level in the survey’s history. Although interest in strategic investment, such as land expansion, remains, farmers are taking into account interest rates, softer commodity prices, and the seasonal outlook before committing to investment projects.

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