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Agriculture prices under pressure despite a hold in interest rates

4 April 2007

AUSTRALIAN farmers breathed a sigh of relief today at news the Reserve Bank held interest rates steady as farmers continue to come to grips with the sharp appreciation of the Australian dollar – rising over 4% over the past month. The movement suggests that the market may have already factored in an eventual rate rise.

"The Australian farming community is hopeful that today's decision will result in some relief-selling of the Australian dollar, thereby, improving the competitive position of our agricultural commodities," National Farmers’ Federation (NFF) Vice-President Charles Burke said.

"As a result of the lift in the Australian dollar, the Westpac NFF Commodity Index, measuring the weighted world price of Australia’s major agricultural commodities, has been under significant pressure, falling -0.2% during March.

"While a strong Australian dollar does not spell good news for agriculture, farmers recognise that the risk of variability in the exchange rate comes with the territory of trading on the fiercely competitive international marketplace.

"Increasingly farmers participate in currency hedging practises which provide a level of security from an increasing Australian dollar.

"We are also confident that our enhanced attention to service provision and quality standards has helped Australian farmers to gain a degree of insulation from the constant swings in currency.

Westpac Senior Economist Justin Smirk said: "The threat of higher interest rates in Australia has been only part of the story behind the stronger Australian dollar.

"Just as important has been the continued rise in commodity prices. Rising resources, energy and agricultural commodity prices have taken Australian export commodity prices to a record high in March.

"As we don't expect to see a significant correction to prices anytime soon, disappointingly for farmers it is difficult to see how the Aussie dollar can move lower in any meaningful way in the near term."

Compared with February 2007 levels, global prices in March lifted for Cotton (0.7%), Dairy (7.0%) and Wool (1.6%). Price falls were experienced for Beef (-2.0%), Barley (-3.2%), Canola (-4.0%), Wheat (-2.4%) and Sugar (-3.0%). The overall weighted index decreased marginally by -0.2% during the month.

[ENDS]

The Westpac-NFF 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.

Media Enquiries: Emma Keogh on (02) 6273 3855 or 0408 448 250.

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