A lower dollar and strong export demand for Australian red meat into China and the Middle East contributed to a recovery in rural business confidence in the June quarter, according to the latest National Australia Bank (NAB) Agribusiness post-farmgate survey.

NAB Agribusiness general manager, Khan Horne, said there were several reasons for the positive findings:

• Business conditions rebounded 14 points to sit in positive territory at +2.  The improved outlook was supported by the depreciating dollar, down 12 per cent over the quarter, and a cut of 25 basis points to the cash rate in May. (The Reserve Bank of Australia further reduced the cash rate to 2.5 per cent in August).

• Significantly, capital expenditure expectations also reached their strongest point in two years, up 11 points to +31, which may reflect increasing export demand taking up spare capacity in processing facilities, Mr Horne said; 

• The rise in business conditions was driven by broad based increases in the three components that make up the measure: employment, trading and profitability; 

• Trading conditions improved sharply, up 18 points to be back in positive territory at +5. While prices were lower resulting in poorer margins, larger trading volumes boosted the cash flows of businesses; 

• Profitability saw similarly solid gains, up 15 points, though still in negative territory at -3; 

• The employment index jumped 10 points to +5 with more respondents reporting an increase in hiring during the quarter than those who were reducing staff numbers; 

• Business confidence was marginally lower in the quarter, down 2 points to -11; 

• In contrast, confidence in animal proteins surged in the June quarter, with sheep meat recording the largest increase of 11 points to +21. This was followed closely by beef with an increase of 10 points to +10.

• Strong demand for Australian lamb and beef exports by China and the Middle East had undoubtedly helped to lift prices and sentiment, Mr Horne said.

Overall confidence in crops has improved over the quarter. Wheat was the strongest performer, rising by 12.5 points from the neutral point last quarter.

Source: NAB