The higher Australian dollar and those lower contracted prices for coal and iron ore have produced another downward revision in the estimates for Australian commodity exports in the year to June 30, 2010.
It’s the second cut this year in the estimated level of export income from shipments of rural and mining commodities from ABARE, the Australian Bureau of Agricultural and Resource Economics.
Not even signs of a stabilising global economy and the rebound in china have been enough to produce a lift in the estimates.
“In recent months, tentative signs have emerged that world economic activity may have stabilized, with international trade and global industrial production expanding modestly following large declines earlier in the year,” the bureau said
“The economic improvement has been more pronounced in China underpinned by expansionary fiscal and monetary policy.”
But even though they will be down, the estimated gross returns will still be the second highest on record.
And, with the AD upgrading China’s growth, there might be a lift in earnings towards the end of the current financial year, even if the dollar remains high.
Unlike the US Japan, China and Europe, our export volumes have not plunged dramatically: it’s mainly the impact of the sharp cuts in contract prices for iron ore and coal, plus the impact of the higher currency.
"The index of unit export returns for Australian commodities, in aggregate, is forecast to fall by 23.6% this financial year, after estimated rise of 28.8% in 2008-09.
"The main contributing factors to this forecast are sharply lower contract prices for bulk commodities, such as coal and iron ore, and the assumed higher average value of the Australian dollar," ABARE said in the September report on commodity production and exports."
Total earnings from Australia’s commodity exports are forecast to fall by 20% to $158 billion in 2009-10, following the estimated rise of 32% to $197 billion in the 2008-09 year.
ABARE said that energy and mineral export earnings are forecast to fall by 23% to $123 billion in 2009-10, mainly as a result of lower contract prices for bulk commodities, including coal and iron ore.
"This updated forecast for the export value of mineral resources represents a downward revision of about $1 billion from the forecast in June.
“At a forecast $123 billion, minerals and energy export earnings in 2009-10 will be the second highest on record,” acting ABARE director, Dr Terry Sheales said in a statement.
The value of energy exports is forecast to drop 36% to around $50 billion in 2009-10 and metals and other mineral export earnings are forecast to fall $125 billion to around $74 billion in 2009-10.
The value of farm exports is forecast to fall by 2.5% to $31.1 billion in 2009-10, following a significant rise of 16% to $31.9 billion in 2008-09.
The latest forecast of farm export earnings in 2009-10 is a downward revision from the $32.5 billion released by ABARE in the June issue of Australian commodities. However, at a forecast $31.1 billion, farm export earnings in 2009-10 will still be around 13% higher than the $27.5 billion recorded in 2007-08.
“Although winter crop production is forecast to increase in 2009-10, an assumed higher average value of the Australian dollar is expected to lead to lower farm export earnings in the short term,” Dr Sheales said.
Agricultural commodities for which export earnings are forecast to rise in 2009-10 include barley, chickpeas, lupins, oats, peas, rice, sorghum, raw cotton and sugar. However, the effects are more than offset by forecast lower export earnings for wheat, canola, wine, livestock and livestock products.
With the NSW government reporting overnight Monday that around 20% of the state’s wheat crop had been damaged by the rapidly returning drought, the forecast for export returns for rural commodities could be sliced even deeper in the December report.
But world dairy prices are rising, with the New Zealand giant, Fonterra (the world’s biggest dairy group), lifting its prices 12% this week, after a 50% jump in the previous six weeks.
If maintained (and there are signs of rising demand from China once again), it could offset the expected weakness for wheat.
News of a possible downgrade in the size of the Australian crop won’t boost world wheat prices with a mega crop reportedly being harvested in the US.
The global wheat crop will be the second largest on record, after last year’s. World wheat stocks have risen sharply, further depressing prices.
Australian mine production in 2009-10 is forecast to increase by 4.6%, thanks to higher production of iron ore, gold, copper, liquefied natural gas and uranium.
