http://business.theage.com.au/opinion Dollar's droop cushions...

http://business.theage.com.au/opinion

Dollar's droop cushions farm price falls

Bullish - beef prices were one commodity to beat the price falls. Photo: Simone De Peak

AdvertisementEmail Print Normal font Large font AdvertisementPhilip Hopkins
November 18, 2008

THE sliding Australian dollar cushioned the impact of falling world agricultural commodity prices last month but, except for dairy and beef, they still registered price falls.

The Westpac-National Farmers Federation commodity price index fell by 1.3%, but prices varied from falls of 9.2% to gains of 7%, reflecting the turbulence caused by the world financial crisis.

The index is now 2.6% below its level a year ago.

Commodities hit by falls were canola and barley (both minus 9.2%), wool (minus 8%), wheat (minus 5.9%) and cotton (down 1.8%). These falls outweighed major price rises for dairy (7.6%), sugar (4.1%) and beef (3.3%).

Westpac's senior agribusiness economist, Andrew Hanlan, said the financial crisis had undermined pricing fundamentals. "The weakening Australian dollar prevented what could have been an extreme month for global agricultural commodities," he said.

NFF vice-president Charles Burke said global demand for barley was stagnant due to abundant European Union crops.

Wheat prices were also down because of global crop abundance and the credit crisis, with production up 11% due to big crops in Russia, Ukraine, Europe, Canada and the Black Sea. Dry conditions in Australia and Argentina were offset by the production increases.

Mr Burke said the financial crisis was creating tough times for traders in Korea, Japan and the US as credit tightened and currencies fluctuated.

The dollar's fall had sheltered the drop in international beef prices and offset lower prices for Australian beef in the US where demand was mostly for cheaper cuts. "US beef imports have fallen as buyers are wary of forward buying due to credit restrictions," he said.

Mr Burke said the weaker dollar had also offset softer dairy prices, but China's milk contamination scandal had increased demand for Australian and New Zealand products. "Inquiries from Asia have increased by 20% from last month," he said.

"Many Australian markets are in recession — Japan, the US and NZ — although growth is expected to continue in China, India and the Middle East."

Mr Burke said farmers' fortunes were reflected in the winter harvest, which was looking solid in northern NSW, Queensland and Western Australia, but poor in southern NSW, Victoria and South Australia.