AUSTRALIA finds itself in an unusual position as the value of the Australian dollar broke the US80c

30 Mar, 2007 08:45 PM

Normally this would mean two things to WA farmers: the disadvantage would be that the price of exports will fall, but conversely, the price of imports will also decrease, making overseas purchases cheaper.

Traditionally these two scenarios would always be the case, but outside factors are having more of an impact on most agricultural commodities than ever before and this has affected normal market trends.

It means that many commodities that Australia relies on for both export and import have actually gone the opposite way to normal economic trends when the dollar value hits this level.

Macquarie Bank chief economist Richard Gibbs said while the Australian dollar had hit a value not seen since the early 1990s, the economic environment both globally and domestically had softened the impact of its rise.

"Interest rates were at 18pc back then and inflation was in double digits," he said.

"Now we are seeing an affect of the urbanisation and industrialisation of India and China having an impact on global markets and in turn the Australian dollar."

Mr Gibbs said agriculturally livestock sales would face immediate impact.

"Grain will lag behind because of contracts in place, but livestock wise there will probably be a softening in price," he said.

"Beef exports to the Japanese market will be affected depending on the quality of the cut, high grade beef shouldn't be as affected because it is not as price driven as the lower end hamburger type beef."

Mr Gibbs said Australians may have to get used to the dollar sitting in the 70-80cUS bracket.

"There is a very bullish view of soft commodities, and that is a long term view of five to six years, that the exchange rate will play less of a role in the market," he said.

p Wool

Elders WA wool manager Stuart Macaulay said the fundamentals of supply and demand were overriding the high Australian dollar.

"The wool market is currently in a position we haven't seen for 20 years," he said.

"If you actually factor the current level of the $A into the wool market at the moment then it is in a very strong position.

"Normally wool prices and the Australian dollar are highly correlated with wool prices decreasing as the dollar value increases.

"At the moment wool prices are strong even with the dollar levels.

"It is all related to supply, and in Australia we haven't seen a supply driven market like the one we are in now for 20 years.

"In the past we have had to deal with stockpiled wool, both in store and on farm, but with the poor season last year a number of farmers took advantage of an increase in wool prices to get rid of those stockpiles to get some cash flow.

"Any wool shorn this year is being sold straight away, and that hasn't happened for a number of years in the WA market.

"It means we have had reasonable numbers still going to sale but with summer shearing now finished the next two months are going to be very interesting in terms of where the wool comes from."

p Live export

WA Live Exporters Association chairman John Edwards said a high valued $A had the potential to decrease sheep and cattle export prices in Australia.

"The export industry has a great lot of activity that is transacted in US dollars," he said.

"Because of this a high $A really impacts on our ability to compete with some other countries.

"As it is export sheep prices are quite high at the moment anyway and the value of the dollar just adds to problem of supplying livestock to areas such as the Middle East and south east Asia.

"Buyers in those areas are ever mindful of currency rates and it doesn't take a lot to tip the scale for them to look at cheaper live products or even frozen or chilled products.

"We have been aware of concern for a number of months over the increasing strength of the dollar from buyers in those regions and although it is early days a value over the 80c mark is not ideal for WA producers."

p Machinery

Farm Machinery Dealers Association spokesperson Sandy Lewis said normally a strong Australian dollar would see machinery prices decrease slightly, but at this stage other factors were causing prices to stay where they were.

"The ethanol industry in the US is causing unprecedented demand for new machinery over there, which in turn means there will be less available to export to Australia," he said.

"Some of the bigger US machinery companies have already come out and said that they have had to reduce alloca-tion of new machines to Austra-lia because of the demand over there."

Mr Lewis said because of the shortage of new machinery, Australian farmers could be forced to look at the second hand market to fill their requirements for the coming season.

p Fertiliser

Summit Fertiliser chief exe-cutive officer Peter McEwen said there were several key factors that influenced fertiliser prices in Australia.

"One was the price of the product to buy, the other is ocean freight rates and the third is the conversion rate back to Australian dollars from US$," he said. "The situation we are seeing at the moment is that fertiliser prices and shipping rates have increased at a much faster rate than the dollar value."

Mr McEwen said the level of increase in the price of fertiliser hadn't been seen before.

"For example 12 months ago DAP was selling for US$255-257/tonne, it is currently sitting at US$423-425," he said.

"Granular urea was selling for US$243-248 a year ago and currently it is at US$330-335.

"It has really been a vertical line jump and this jump is being driven by demand from Central America and the US and the production of corn for use in the ethanol industry in those countries."

Mr McEwen said shipping rates had increased from $15,000 a day this time last year to $40,000 a day currently.

"While the strong Australian dollar may slightly offset these price rises, there is no way it could ever compensate for them," he said.

p Grain

Agricultural consultant Richard Koch, ProFarmer, said on a pure dollars and cents theory, for every cent the Aus-tralian dollar went up, grain prices dropped $3 per tonne.

³The higher value of the Australian dollar against a weaker US$ makes Australian grain less competitive in the international market,² he said.

³Normally farmers would enjoy a decrease in input costs that would offset the decrease in values for grain, but in terms of fertiliser this isn¹t happening at the moment. Fuel prices should be lower though going forward.²

³We are encouraging produ-cers to combine commodity and currency risks going forward as hopefully higher commodity prices offset the higher currency value,² he said.



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