DESPITE a recent rebound,the Aussie dollar has fallenby about 15% since July,

with Australian farmers breathingeasier on the back of improvedinternational competitiveness andbetter prices on the global market

While the use of riskmanagement practices ensurefarmers are more insulated fromcurrency variables than everbefore, the sector remainssensitive to dramatic fluctuations.

Farmers were exposedwhen the dollar pushed towardsparity with the United States(US).

A dollar around 83 centsis still high, but the relief ispalpable.

Most agriculturalcommodities compete oninternational markets and willbenefit from the improvedcompetitive position the lowerdollar brings — especially highvolume commodities produced inthe second half of this year.

With the winter harvestfast approaching and the firmingup of production levels, graingrowers will be particularlypleased by the lower dollar asthey look to potentially lock inprices for their grain — priceslinked to the new dollar rates.

The recent exchange ratemovement is providing thecushioning role that the floatingAustralian dollar is designed toplay.

The fall in the dollar isoffsetting the effects of easingglobal commodity prices — notonly for agricultural commoditiesthat have reduced by almost 10%in US dollar terms since Marchthis year, but also base metalprices that have fallen by 30%during the same period.

We must also keep in

mind the fact that a depreciatingdollar elevates the price ofimported farm inputs, such as oiland fertiliser.

It is fortunate that theprice of crude oil has decreasedfrom an early July peak ofUS$145/barrel to its current levelof around US$120/barrel —making the dollar s impact onfarm inputs less pronounced.

The depreciation of theAustralian dollar has dominatedagricultural commodity marketsthis month as internationalcompetitiveness and better pricesare being attained by Australian

farmers.The Westpac-NFF

Commodity Index lifted 5.2%,assisted by the Australian dollar sfall to be 3.1% above year-agolevels.

Commodities experiencingdecreases were canola (-9.1%)and barley (-6.5%). However,these substantial falls were not

enough to negate the affects ofrobust wheat (9.8%), dairy(5.5%), wool (1.2%), cotton(4.7%), sugar (11.7%), and beef(7.4%) gains.

Barley

The global barley marketlost ground in August, with pricesdropping 6.5% as internationaldemand eased and the Ukraineand the European Union (EU)returned good yields from theirharvests.

Australia primarily sent itsmalt barley to Asia, as demand

“With the winter harvest fast approachingand the firming up of production levels, grain

growers will be particularly pleased by thelower dollar.”

- Charles BurkeVice-President, National Farmers’ Federation

Lower dollar means things arelooking up for farmers

September 2008

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

Commodity IndexWestpac-NFF

Westpac-NFF Commodity Index

for high quality malted barley tobe used in alcohol continues toincrease.

The majority ofAustralia s feed barley this monthwent to the Middle East wheredemand increased due to fallingprices.

Beef

A decrease in the value ofthe Australian dollar has helpedlift prices for export beef inAugust, with prices rising 7.4%from July.

Increased buying fromRussia has offset decreased salesto Japan, Korea, Taiwan, US andCanada.

Australian beef prices arestill high and export opportunitiesto countries outside the big three(Japan, US and Korea) areexpanding as farmers seize newmarkets in Chile, Russia and theEU.

Japan s beef consumptioncontinued to rise on the back of astrong presence of US beef andreduced safety concerns.

Korean stocks are buildingas importers are having difficultyselling due to lack of consumertrust in imported beef.

Canola

August saw a recordharvest in western Canada, withincreases in planting attributedmainly to biodiesel demand,prices at time of planting andincreased crushing capacity.

As a result of the northernhemisphere harvest andweakening demand, the globalcanola price fell 9.1% during themonth. Another factor affectingprices is the increased productionof canola in the EU and theUkraine.

Cotton

The global cotton marketwas quiet this month as pricesincreased by 4.7% from July.

Concerns early in Augustover of lack of moisture in India,China, US and Argentina havebeen mostly allayed.

Drought has adverselyaffected production in Australia,and many farmers have switchedcrops and are now growing wheatin a response to water scarcity

and relative prices.India s production

forecasts are looking good afterearly concerns, as improvedweather conditions have enhancedyield quality, leading toexpectations of a large surplus ofhigh quality cotton.

India is expected this yearto overtake the US as the leadinginternational cotton exporter, andovertake China as the largestcotton producer.

Dairy

With global demand fordairy products still at recordhighs, prices lifted a further 5.5%this month.

The United Kingdom andparts of continental Europe arefacing seasonal supply problemsdue to falling production on theback of growing demand.

New Zealand and Chinahave negotiated a free tradeagreement, which has now haseliminated all Chinese tariffs onimports of New Zealand dairy.

Sugar

Despite large internationalstockpiles, demand increases fromfast growing economies andexpectations of future globalshortages saw sugar prices soar11.7% during the month.

The expectation of tightglobal supplies are due to heavyrain damage to the Brazilian cropin the lead up to hurricane Gustavand reports of a poor season in

2

Table 1. Component Indices.

Wheat prospects surge on the back ofwinter rains.

September 2008

India.Meanwhile, the US has

will allow more sugar imports andEurope has announced that it willcut sugar subsidies by 9%.

Wheat

Global prices remain firmamid solid demand, with pricesup 9.8% during the month. Thiscomes despite global productionincreasing due to milder weatherand increased plantings. Majorexporters reportedly will haveconsiderable surpluses that areexpected to lead to strongcompetition for wheat fromAfrican and Middle Easternmarkets.

Rain during July hasstrengthened Australian wheatharvest prospects with crops inabove average condition.

Estimates for Australia swheat crop increased, but risks

remain as spring rain is stillneeded.

Strong production in theUS, Canada and Australia willincrease competition into Asianmarkets. However, delayed rainsin the EU have sparked qualityconcerns for the last harvest.

Wool

The global wool marketremained slow in August withprices only marginally up fromJuly. With the Olympics over,Australia s major Chinese woolbuyers are back to work, althoughthere is lower demand from theUS due to the credit crisis.

Despite Chinese demandbeing relatively stagnant, theglobal market is seeing someinterest from Europe —particularly from Italy in the finewool categories, due to theweaker Australian dollar.#

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.

September 2008