WOOLGROWERS’ confidence appears to be booming as high as farm profits, as a 50 per cent spike in gross margins leads to extensive on-farm investments.
Holmes Sackett economist John Francis, Wagga Wagga, NSW, said wool gross margins per dry sheep equivalent had increased 50 per cent this year, compared to the five year average.
“If we look at profits in the year to date it is about $32/DSE, compared to the five-year average of about $15/DSE,” Mr Francis said.
“Things are as good as it gets for growers. Hopefully it is going to get even better.
“The majority of that rise has come from price increases rather than a difference in cost structure.”
The profit boost explains growers’ wave of confidence since early 2015, resulting in the consolidation of debt and increase in on-farm investment.
The optimism is expected to continue throughout the year ahead, with the sentiment sweeping the sheep sector driven by historically high prices for lamb, mutton and wool.
Rabobank Rural Confidence Survey found optimism in the sheep sector was higher than other surveyed agricultural commodities over the past 12 months.
“We’ve gone through some tough cycles in the wool industry, reminding of us of the cyclical nature of agricultural commodities,” Rabobank national manager Country Banking Australia Todd Charteris said.
“I guess we are riding the wave of strong confidence.
“Sheep producers are really upbeat about the prospects within the industry.”
Wool and sheepmeat prices and seasonal outlook has underpinned the optimism prevailing the sector, resulting in about 30 per cent of sheep producers increasing their investments in the coming 12 months.
Two-thirds of those investments are expected to focus on farm infrastructure, 32pc looking to increase livestock numbers and 30pc looking to increase labour.
A further 15pc of sheep producers are looking to purchase property and expand their farming operation.
In terms of debt, about 6pc are looking to increase levels and roughly 27pc looking to repay debt,.
“So this period is about consolidation,” he said.
“There is a high degree of farm investment but from a debt perspective, producers expect to make that investment from cash flow rather than increasing borrowings.
“That underlined confidence is starting to show through with investment intention.”
Across the country, confidence was reported to be strongest in Victoria, Tasmania and NSW.
Rabobank’s Viability Index also confirmed the industry’s optimism.