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Australia
13 December 2007
Despite the
Westpac-National Farmers
Federation Commodity Index reaching record highs in 2007, it
has been a frustrating year for Australian farmers many of whom
were unable to capitalise on the commodity boom due to poor
seasonal conditions and the continuing drought.
Commodity prices over the year were largely driven by a surge in
global demand for biofuels, strong economic growth in developing
countries, global population growth leading to urban
encroachment on arable land and widespread drought in key
agriculture production nations such as Australia.
NFF Vice-President Charles Burke said the Index peaked in
September at almost 50% above 1997/98 levels.
“Australian farmers were buoyed by the possibility of a strong
winter cropping season as early rain promised to see production
meet high global prices,” Mr Burke said.
“However, the failure of the rains to eventuate over both winter
and spring saw that optimism wane as the sector was plunged into
unprecedented back-to-back winter crop failures, and minimal
water allocations for many farms across the country.
“As a result, farm debt mounted, rising to over $45 billion.
This was further exacerbated as farmers became even more acutely
exposed to official interest rate increases during 2007.
“Rising interest rates and strong growth in demand for
Australian commodities combined to see a steep rise in the value
of the Australian dollar, dampening some of the potential gains
from strong world agricultural commodity prices. Peaking at over
US93 cents to the Australian dollar (up from US77 cents earlier
in the year), potential farm-gate returns were slashed, just
when every cent counted the most.”
Westpac Senior Economist, Justin Smirk, said despite the
frustrations for Australian farmers, the international market
for agricultural commodities had remained very strong.
“Demand for sugar and grains from the growing biofuels market,
driven mainly by the US and EU, has been largely credited with
soaring commodity prices. However, another important factor has
been changing demand patterns flowing on from flourishing
economic conditions in developing countries, especially
South-East Asia and China,” Mr Smirk said.
“Economic growth in China averaged 11.1% during 2006, a trend
that is expected to continue in the short- to medium-term,
precipitating more disposable individual incomes. This is
expected to continue to drive demand for meat protein and
horticulture products, as diets in these regions move away from
traditional cereal-based fare to a greater diversity of food
types.
“With such strong fundamentals driving prices on the world
markets, it is no wonder that Australian consumers are beginning
to see more expensive retail food prices.”
Mr Burke added: “Australian farmers are now hoping that 2008
will bring them a greater share of these prices and that vastly
improved rainfall can finally break the back of drought.”
Compared with October 2007 levels, global prices in November
increased for Canola (5.6%), Sugar (1.1%) and Wool (2.5%). Wheat
(-4.8%), Beef (-0.1%), Barley (-2.8%), Cotton (-0.9%), and Dairy
(-3.8%) all experienced a decrease in price from previous month
levels.
The overall weighted index decreased by 1.6% in Australian
dollar terms during November, yet remains 13.3% above year ago
levels.
The Westpac-NFF Commodity 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.
Related link:
Westpac-NFF Commodity Index - December 2007 |
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