Westpac-NFF Commodity Index€¦ · driven by growth in global demand for biofuels, strong economic...
3
T he Westpac-NFF Commodity Index reached record highs in 2007, driven by growth in global demand for biofuels, strong economic growth in developing countries, global population growth and widespread drought in key agriculture production nations such as Australia. The Index peaked in September 2007 reaching levels almost 50% above those of 1997- 1998. However, for Australian primary producers it has been a frustrating year. Initially, farmers were buoyed by a strong start to the winter cropping season and forecasts that production may finally align with strong global prices. The failure of the rains to eventuate over both winter and spring saw that optimism wane as the prospect of back-to-back winter crop failures and minimal water allocations were common across much of the country. This led to a further hike in the level of farm debt to over $45 billion, and with this a greater exposure to rising interest rates - which lifted by 0.50% during 2007. Rising interest rates and strong growth in demand for Australian commodities also led to a sharp lift in the value of the Australian dollar (AUD), which dampened some of the potential gains from strong agricultural commodity prices. Peaking at over US93 cents to the AUD, potential farm-gate returns were slashed. Yet, despite these frustrations, the international market for agricultural commodities has remained strong. Biofuels have been largely credited for the robust prices, amid heightened demand for sugar and grains - mainly from the United States (US) and European Union (EU). Another important factor has been changing demand patterns flowing from more affluent economic conditions in developing countries, especially South-East Asia and China. 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. Australian farmers are hoping that 2008 delivers a greater share of these prices, and 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. Barley Australia s barley harvest has delivered mixed results, feed barley values remain under pressure, decreasing 2.6% during the month, however, malt prices “The international market for agricultural commodities has remained strong.” - NFF Vice-President, Charles Burke 2007: A frustrating year for Australia’s farmers December 2007 Barley • Beef • Canola • Cotton • Dairy • Sugar • Wheat • Wool Commodity Index Westpac-NFF
Transcript of Westpac-NFF Commodity Index€¦ · driven by growth in global demand for biofuels, strong economic...
The Westpac-NFFCommodity Index reachedrecord highs in 2007,
driven by growth in globaldemand for biofuels, strongeconomic growth in developingcountries, global populationgrowth and widespread drought inkey agriculture production nationssuch as Australia.
The Index peaked inSeptember 2007 reaching levelsalmost 50% above those of 1997-1998.
However, for Australianprimary producers it has been afrustrating year. Initially, farmerswere buoyed by a strong start tothe winter cropping season andforecasts that production mayfinally align with strong globalprices.
The failure of the rains toeventuate over both winter andspring saw that optimism wane asthe prospect of back-to-backwinter crop failures and minimalwater allocations were commonacross much of the country.
This led to a further hikein the level of farm debt to over$45 billion, and with this agreater exposure to rising interestrates - which lifted by 0.50%during 2007.
Rising interest rates andstrong growth in demand forAustralian commodities also ledto a sharp lift in the value of theAustralian dollar (AUD), whichdampened some of the potential
gains from strong agriculturalcommodity prices. Peaking atover US93 cents to the AUD,potential farm-gate returns wereslashed.
Yet, despite thesefrustrations, the internationalmarket for agriculturalcommodities has remained strong.
Biofuels have been largely
credited for the robust prices,amid heightened demand forsugar and grains - mainly fromthe United States (US) andEuropean Union (EU).
Another important factorhas been changing demandpatterns flowing from moreaffluent economic conditions indeveloping countries, especiallySouth-East Asia and China.
With such strongfundamentals driving prices onthe world markets, it is no wonderthat Australian consumers arebeginning to see more expensiveretail food prices.
Australian farmers arehoping that 2008 delivers agreater share of these prices, andvastly improved rainfall canfinally break the back of drought.
Compared with October2007 levels, global prices inNovember 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%) allexperienced a decrease in pricefrom previous month levels.
The overall weightedindex decreased by 1.6% inAustralian dollar terms duringNovember, yet remains 13.3%above year ago levels.
Barley
Australia s barley harvesthas delivered mixed results, feedbarley values remain underpressure, decreasing 2.6% duringthe month, however, malt prices
“The international market foragricultural commodities has
remained strong.”- NFF Vice-President, Charles Burke
2007: A frustrating yearfor Australia’s farmers
December 2007
Barley • Beef • Canola • Cotton • Dairy • Sugar • Wheat • Wool
Commodity IndexWestpac-NFF
Westpac-NFF Commodity Index
are stable.Australia is well placed in
the Chinese malting barleymarket, where it is understoodthat a major exporter has securedstrong forward contracts sales.
The Saudi marketcontinues to be very quiet, despitesuggestions that their supplieswill run short in early 2008.
Beef
US imports of beef fromAustralia, New Zealand, Canadaand Uruguay have been adverselyaffected by the continueddepreciation of the greenback.
The Japanese marketremains subdued, with demandfor Japan s year-end high beefconsumption period falling flatdue to high prices relative to otherprotein sources.
Korean demand remainsstrong, both in wholesale andchilled beef, helped by recentAustralian beef promotions.
November prices werelargely unchanged and trade isexpected to remain strong for therest of the year as Korea s peakbeef consumption period overChristmas and the Lunar NewYear draws closer.
Canola
The soy and vegetable oilmarkets are increasinglyintertwined with crude oil trends,with prices strengthening afurther 5.6% during the month.
Chinese demand for
biodiesel is high with aggressivepurchases of canola and othervegetable oils ahead of FebruaryChinese New Year festivities.
Canola is selling at amodest premium, compared tosoybeans, and is reported by someto be an under-priced product.This is starting to attract greaterexport interest and improvedAustralian domestic crushingrates.
Meanwhile, largequantities of refined canola oil arebeing imported to the US fromCanada to support their biodieselproduction.
Cotton
Cotton prices haveexperienced downward pressureacross several fronts resulting in a
0.9% fall in the global price overNovember.
The northern hemisphereharvest is in full swing, creatingplentiful short-term supply,especially from the US, whereharvest weather has been idealand yields better than expected.
There are also reports oflarge quantities of unsold stocksin the global market, potentiallydue to over-capacity in the Indianand Chinese textile sectors.
India has downscaled itsyield estimates due to excessiveheat in early October.
Pakistan increased theirimports after pest problems.
Harvest in China is nearcompletion amid concerns aboutthe recent cold and wet weather,which could see high grade cottonin short supply.
Dairy
The seasonal decline inEurope continues, thoughfavourable weather patterns andcooler temperatures havesignificantly softened its rapidity.
Additional output hasbeen mainly directed at EUdomestic markets and rebuildinginventories, with minimalvolumes for international sales.
Conditions in Australia arestill poor despite some rainfall inearly November increasingcatchment volumes andrevitalising pastures.
Revised Australianproduction estimates for 2007-08are now 5% lower than last year.
2
Table 1. Component Indices.
Power plant: canola... a driving forcefeeding international biofuel surge.
December 2007
Milk production in NewZealand continues at peak levels.
Sugar
The projected globalsurplus of over 10mmt, largelythe result of over-production inIndia, has continued to exertdownward pressure on theinternational sugar market.
Rising freight prices inBrazil have given India access totraditional Brazilian markets suchas the United Arab Emirates andRussia. Pakistan and Sri Lankaboth expect production shortfallsand will increase imports.
These factors helpedprices rise 1.1% for the month.
Wheat
Wheat prices surgedhigher towards the end ofNovember after reports of frost in
the Argentine wheat belt, yetremained 4.8% down for themonth.
The price-spike settledwhen the estimated damage wasreported as minor. However,continued world shortages areensuring long-term support ofvalues in the grains market.
Wool
The wool marketexperienced downward pressurefrom the strong AUD. Solidvolume estimates also addedpressure on the wool price.
However, now that theAUD is back below US90c, thesector is expecting stronger buyerinterest. Fine and medium woolcontinue to trade well-above theprices achieved in the twoprevious seasons and overallprices rose 2.5% duringNovember.#
Westpac-NFF Commodity Index
3
Westpac-NFF
Commodity Index
Editor-in-ChiefBrett Heffernan
EditorEmma Keogh
EconomistsJustin Smirk
Charlie McElhone
The Westpac-NFF Commodity Index ispublished monthly (February through
December) as a joint undertaking betweenthe Westpac Banking Corporation (ABN 33007 457 141) and the National Farmers’
Federation (ABN 77 097 140 166).
Westpac Banking Corporation Head Office:275 Kent St, Sydney NSW 2000.
[T] 02 9293 9270, [F] 02 8253 4128,[W] www.westpac.com.au.
National Farmers’ Federation Head Office:NFF House, 14-16 Brisbane Ave, Barton ACT
2600. PO Box E10, Kingston ACT 2604.[T] 02 6273 3855, [F] 02 6273 2331,
[E] [email protected]; [W] www.nff.org.au.
Material in the Westpac-NFF CommodityIndex is protected under the
Commonwealth Copyright Act 1968. Nomaterial may be reproduced in part, or inwhole, without the written consent from
the copyright holders (NFF).
The Westpac-NFF Commodity Index isweighted according to the value of
Australian rural commodity exports only,dating back to June 1983.
Therefore, unlike other commodity indices,rural export prices are not overshawdowed
by oil, mineral and energy prices.
This index is updated on a daily basis andcalculated in both $A and $US so the
effects of exchange rate differentials canbe determined. The Westpac-NFF
Commodity Index benefits all levels ofAustralian agribusiness by providing a
relevant and timely indicator of commodityprice movements.
Westpac Banking Corporation and theNational Farmers’ Federation have taken allreasonable care to ensure the materials arecorrect and complete. However, since they
are not the primary sources of thematerials, they can give no warranty in
relation thereto and disclaim liability for allclaims against them, their employees,agents or any other person, which may
arise from anyone acting or relying on thematerials.
For more information, enquiries should bedirected to either:
Justin SmirkSenior Economist
Westpac Banking Corporation(02) 9284 9336
orBrett Heffernan
General Manager - Public AffairsNational Farmers’ Federation
(02) 6273 3855.
Graph 1. Index Over 1 Year: Average Of First Month = 100.
Graph 2. Historical Index: Average Of 1997/98 = 100.
December 2007
