National Australia Bank’s  latest post farm gate agribusiness survey shows that while conditions in the sector proved challenging in the June quarter, they are expected to lift towards the second half of the year.

NAB’s General Manager of Agribusiness, Khan Horne, said that rising global grain prices should provide a much needed boost to business conditions in the coming six months.

“Confidence remains subdued as the effects of the Euro-zone debt crisis and ongoing volatility in financial markets continue, which have had a flow on effect to trading conditions for the post farm gate sector,” said Mr Horne.

As a result, demand remains a key concern for the sector with 62 per cent of respondents citing it as a constraint. In terms of profitability, 48 per cent of respondents consider demand to be the most constraining factor over the coming 12 months.

Commenting on results, Mr Horne said that while the findings are consistent with conversations he was having with customers, it’s important to remember that Australia’s agricultural industry remains very buoyant.

“We are looking at a sector that has become more cautious, and reflecting this caution capital expenditure plans have also fallen back, with the index dropping seven points to settle at 10 points,” he said.

Export sales remained stable over the June quarter, with the index showing a lift of 13 points on the previous month. In contrast, trading conditions dropped to a level similar to the flood affected March 2011 result, falling 10 points to -19 points.

Although the index is down, seasonality and the exchange rate have had a positive impact on trading conditions as farmers across most of the eastern states have continued to experience good seasonal conditions.

Confidence in commodities was mixed in the June quarter, with confidence in wheat strengthening to sit comfortably above its long run average level. Confidence in other crops also posted a solid result, up 11 points.

Animal protein markets are more susceptible to income shifts than crops. As a consequence, confidence across beef, dairy, poultry and sheep meat was down due to softening global prices and reports of buyers becoming increasingly cautious in a more uncertain economic environment.

Looking ahead, we suspect that confidence in commodities should begin to lift through the second half of the year, as the impact of high grain and oilseed prices work through the commodities complex.

“While demand conditions remain the key concern, the post farm gate sector is quite optimistic about profitability in the coming quarter, with the expectations index moving into positive territory,” Mr Horne said.