Like all sectors of theAustralian economy,agriculture is now weighing

up the implications of the globalfinancial crisis.

Already we have seen thatglobal agricultural commodityprices have not been unscathed bythe crisis, reflected by a 1.7% fall,despite a significant depreciationof the Australian dollar.

However, mostcommentators agree that Australiaand the agricultural sector inparticular, is far better positionedto weather the storm than most.

Agricultural commodityprices have lifted on the back ofdemand factors including risingpopulations, improving diets anddemand for biofuels, combinedwith low world food stocks.

All of the underlyingfundamentals for agricultureremain sound despite the recentglobal financial troubles.

While challenges willundoubtedly continue to emergefor Australian farmers from thiscrisis, people will demand foodand fibre to service their mostbasic needs and this placesagriculture on a relatively firmposition — even in the event thatthe economic fallout worsens.

The Index is now 4.7%below year-ago levels.Commodities experiencingdecreases were canola (-4.9%)wheat (-4.6%), cotton (-1.4%),dairy (-3.3%), and barley (-3.6%).

These falls outweighed a lift inprice for wool (1.0%), sugar(0.4%), and beef (1.1%).

Barley

The rise in globalproduction affected internationalbarley prices in September, withprices falling 3.6% for the month.

A hefty surplus from boththe Black Sea, the former SovietUnion and collateral backlashfrom the United States (US)financial credit crisis were the keydrivers. Australian malting barleyexports continue to be steered byChinese interest, which areanticipated to engage in buyingnext month.

September saw Europeanbarley become more competitivedue largely to a drop in currencyvalues against the US dollar, andcheaper freight rates. The USharvest is nearly complete with alarge crop anticipated, but the

malting quality is in question.The Canadian harvest is

50% completed, with yields andmalt percentage reportedly higherthan expected.

Demand for feed use isexpected to increase in the US,Canada and Saudi Arabia as aresult of the lower prices.

Beef

The rapid decline of theAustralian dollar, along with soliddemand and tight supplies,comnine to keep beef prices inAustralia stable this month, with a1.1% increase in price on lastmonth levels.

Prices are falling in Korea,as more US beef floods themarket and demand remains low.Beef from the US is still notbeing sold through major Koreanretailers, and is not yetthreatening Australian markets.

In Japan, competition is

“All of the underlying fundamentals foragriculture remain sound despite the recent

global financial troubles.”- Charles Burke

Vice-President, National Farmers’ Federation

Aussie farmers to withstandglobal financial chaos

October 2008

Barley • Beef • Canola • Cotton • Dairy • Sugar • Wheat • Wool

Commodity IndexWestpac-NFF

Westpac-NFF Commodity Index

increasing from the US (withmixed interest), yet demand forAustralian beef remains firm.

The market in the US wasslow during September, asdomestic supplies rose and priceconscious consumers turned awayfrom high-end beef products dueto the economic crisis. With thelower domestic demand, the USreturned to being a net exporter ofbeef this month. Australianexports to Russia and south eastAsia will offset increasedcompetition from the US intonorth Asia.

Canola

Higher prices for canolahave resulted in a 48% increasedplanting in Australia on last yearlevels, although production isdependent on continuing springrains. Harvests have now beencompleted in Europe and theUkraine, with both exceedingestimated production and qualityexpectations. High productionvolumes in the Ukraine havemeant that storage looks to be itsmajor issue. The crop in Canadais due to begin harvest this monthand is currently in excellentcondition. The market this monthas a result of this abundance inCanada and Europe, has moveddown 4.9% from August.

Cotton

International mills arepredicted to decrease productionof cotton in coming months. This

is due to a 1.4% downward turnfor cotton prices during August.There was a lack of Chinesebuying as domestic productsflood the market and mills werereluctant to buy due to thedownturn in world economies.Mills in the US are finding itdifficult as credit tightens.

The US has a sizeablesurplus of cotton. Early inSeptember, concerns were raisedover Hurricane Gustav causingqualitative damage to crops,however, the harvest is underwayand reports are that crops arerated to be good. Yet, torrentialrains in northern and eastern Indiaare expected to delay picking andare predicted to damage crops.

Dairy

With the US dollar risingdramatically against currencies ofother major dairy exporters,downward pressure on dairyprices ocurred this month - falling3.3%.

Also affecting prices is thegrowing surplus coming out ofthe US and Brazil. Weak demandin the US and the EuropeanUnion is also forcing moreproducts onto the global market.

Drought in Australia aswell as record demand for milkproducts from China and Indiahas stabilised prices.

China is currently tryingto minimize fallout from what hasbeen internationally dubbed "TheChinese Milk Crisis" in which 20people have been arrested, 53,000

children have fallen sick orhospitalised and four childrendied after melamine (a chemicalused in plastics) was added todairy products to give an apparentboost in protein content.

It was initially onlythought to concern milk powder,but was extended to cover anydairy ingredient and 25 countrieshave banned, issued warningsabout or recalled Chinese dairyproducts or food containing it.

Sugar

Global prices pushedslightly higher due to loweracreage sown in India and aslowdown in Brazil s harvest dueto rain. Brazil s above averagerainfall boosted sugar cane yieldsand has slowed down the harvestand exports and 57% ofsugarcane in Brazil will beconverted to ethanol.

The US (Louisiana) hasbeen devastated by HurricaneGustav, which has wiped outalmost 40% of the cane harvest.Hurricane Gustav, like HurricaneIke earlier in the month, causedwind damage, but saltwaterflooding has caused the realdamage, with vast areas of canein Louisiana under salt water.

Wheat

The global financialdownturn has affected wheat thismonth, with prices dropping4.6%. Harvests in the Black Seaand Europe are all but finished

2

Table 1. Component Indices.

October 2008

with record production in bothareas, but smaller crops in thesouthern hemisphere, particularlyAustralia and Argentina, havecancelled out global surplusgains.

Harvests in India, Chinaand Australia look set to boostAsia s depleted wheat stocks.High global prices saw increasedplanting in Russia and theUkraine, resulting in surpluses inboth countries.

China has been affectedby floods, earthquakes and icestorms, but still look to increaseits output. India s monsoon rainsarrived to help set a record wheatharvest.

Global supplies of highquality milling wheat are low, soAustralia may get good prices forits better quality grades.

Australian crops arecurrently looking average togood, but still need more rain.

Wool

Wool experienced highvolatility during September, withprices only marginally lifting1.0% from last month, as globaldemand for raw wool declines.

Dry weather in southernparts of Australia has resulted in areduced flock with lighter fleece.

Falls in the Australiandollar have made wool cheaper onworld markets, with astrengthened US dollar currentlypushing prices down.

One of China s largestbuyers was active duringSeptember, but did nothing toraise prices, which remained firm.Clothing makers in China havesurplus stock that is predicted tolast until January, so are not keento source more. Fine woolcontinues to do well, with interestcoming from Europe, Italy inparticular, and Taiwan.#

Westpac-NFF Commodity Index

3

Westpac-NFF

Commodity Index

Editor

Brett Heffernan

Economists

Andrew Hanlan (Westpac)

Charlie McElhone (NFF)

The Westpac-NFF Commodity Index ispublished monthly as a joint undertaking

between the Westpac Banking Corporation(ABN 33 007 457 141) and the NationalFarmers’ 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] nff@nff.org.au; [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:

Jane CounselWestpac Media

Westpac Banking Corporation(02) 8253 3443

or

Brett HeffernanGeneral Manager - Public Affairs

National 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.

October 2008