FALLING AUSTRALIAN DOLLAR GOOD NEWS FOR LOCAL FARMERS
Wednesday, 26 November 2014
Trends have been generally favourable for South Australia’s farmers in recent months – particularly for crop farmers – the latest BankSA Rural Price Index shows.
Released today, the Rural Price Index is part of the Trends economic bulletin compiled by BankSA and Deloitte Access Economics.
It has been tracking farm prices for South Australian farmers since early 2000, and is a measure of prices for three main groups of products – grains, livestock and horticulture.
The Trends bulletin reports that weather condition have been favourable for most cropping regions in South Australia, with good rainfall in autumn and winter.
BankSA Chief Executive Nick Reade said that despite the lack of finishing rains, which has taken the gloss off an extra strong year, the outlook is for yields to be above average for this year’s winter crop.
“The falling level of the currency has also been a source of good news,” Mr Reade said.
“In particular, the Australian dollar has been below parity with the US dollar since May 2013.
“Prices in Australian dollars (those received by local producers) have slowly been trending up over the past two years. While in contrast, prices in foreign currency terms (paid by buyers) have mostly fallen over this period.
“World prices from farm products have fallen across that time. It’s a trend that remains true for global grain prices, but the falling Australian dollar has helped to cushion that blow in terms of the prices received by our farmers here at home.”
Even after its recent falls, the report says, the level of the Australian dollar remains above its historical average, and currency pressures on farmers also remain above average compared to the long sweep of history.
In South Australia, livestock and livestock products account for nearly half the State’s agricultural production, with sheep meat production leading the way ahead of solid contributions from wool, beef, poultry, pigs and dairy production – each of which produce more than $200 million in value annually in South Australia.
While prices for livestock and livestock products remain lower than their peak of three years ago, prices have been moving higher since the start of this year, Trends reports.
Livestock prices have increased by around 10 per cent, while prices for livestock products, such as wool and dairy products, have increased by around 6 per cent.
“Strong export demand is the key factor driving the increasing level of exports and the recent strength in prices,” said Mr Reade.
“China is increasingly becoming a key source of export demand as rising incomes allow for greater purchases of meat and other livestock products from Australia.
“A continuation in the strength of export demand is expected to support prices over the remainder of this year.”
Crops and grains account for around 30 per cent of the State’s agricultural production, with wheat alone accounting for more than $1 billion. Yet global trends are challenging with crop and grain prices on an upward trend since 2010, but falling back over the past year, and remaining under pressure.
Meanwhile, horticulture accounts for the remainder of the State’s agricultural production, at about 20 per cent of the total. Horticulture prices have been relatively stable over the first half of 2014, following a fall in the middle of 2013.
Overall, Trends reports, some further moderation is expected in the near term for some key prices, including for crops and grains, while prices for livestock and livestock products are generally expected to maintain their increase over this financial year.
The fact that the Australian dollar is now down from its earlier lofty levels above parity with the US dollar is good news for local farmers. And there is the potential for the Australian dollar to fall further.
“It has been estimated that every cent that the dollar drops against the US dollar adds some $400 million to annual farm revenue (more than 1 per cent) across Australia,” said Mr Reade.
“So if further falls in the value of the Australian dollar were to occur, that would be good news for the farm sector.”