Exports dry up as drought deepens, but expect a rebound

DESPITE a massive hike of almost 20% in world commodity prices, Australia’s farmers are often sidelined – unable to capitalise – as the drought continues to slash production volumes.
The Westpac-NFF Rural Commodity Index, measuring the weighted world price of our major agricultural commodities, this month increased by 19.6% on levels a year ago – mostly due to strong global grain, wool and dairy markets.
“Australia’s trade balance is now starting to hurt from the decline in the level of agricultural produce, with the Australian Bureau of Statistics indicating an inflated December trade deficit of $1.3 billion, following a 4% drop in rural exports,” National Farmers’ Federation (NFF) Vice-President Charles Burke said.
Significant in accounting for the fall was a 9% drop in exports of cereals, which have been ravaged by ongoing drought conditions.
“This drop in rural export volumes will be reversed in 2007,” Westpac Senior Economist Justin Smirk predicted. “That is, given a return of more normal seasonal conditions.
“The relatively positive outlook of farm commodity prices will encourage farmers to make the most of any rainfall they receive this year, so we are expecting a solid bounce in farm production and exports. Of course, this is all dependent on rain.”
The NFF said another driver of strong rural commodity prices is the rise in world demand for, and production of, biofuels.
“Looking back over the past 12 months, new demand from the energy sector has had an overwhelming impact on the price of agricultural commodities,” Mr Burke noted. “The United States and the European Union, in particular, have driven world demand for grain through their domestic support of the emerging biofuels sector, with those Australian grain producers who can yield a crop benefiting from the sharp rise in world prices.
“However, with Australia’s harvest volumes down by over 60% on a year ago, the global price is frustratingly out-of-reach for our grain farmers, who find they have little to sell.”
Compared with December 2006 levels, global prices in January lifted for Barley (1.2%), Cotton (1.0%), Dairy (3.6%) and Wool (6.3%). Price falls were experienced for Wheat (-3.9%), Beef (-3.1%), Canola (-0.4%), and Sugar (-4.7%). The overall weighted index decreased marginally by 0.7% during the month.
[ENDS] The Westpac-NFF Index is weighted according to the value of Australian agricultural exports and includes only rural commodities – unlike other price indices that are overshadowed by oil, mineral and energy prices. It provides daily movements based on prices of Australia’s eight key farm exports – wheat, barley, beef, wool, cotton, sugar, dairy and canola – in both $US and $A.