While there’s been a steadying in the expected fall in export income from our commodity exports forecast for the 2010 financial year, take car to keep an eye on the value of the Australian dollar: it could be a major influence.
Estimates ABARE (The Australian Bureau of Agricultural And Resource Economics) released yesterday showed the rate of fall in Australia’s commodity export income is slowing.
Income is now estimated to fall to $160 billion in the year to June 30, 2010, down from the $162 billion estimate last March and the $196 billion expected for the year to June 30, 2009.
But ABARE warned that the stronger Australian dollar might further clip earnings during the year.
The dollar has risen by around 12% so far this quarter as markets forget about risk and that has led ABARE to warn: “There is a distinct possibility the Australian dollar could remain at its current level or even appreciate further against the U.S. dollar in the near term.”
(ABARE said that in preparing this set of commodity forecasts, the Australian dollar is assumed to average US77c in 2009-10, compared with an average of US75c in 2008-09. The dollar has traded around 80 US cents for much of this quarter).
"While world prices for some commodities are expected to rise during the course of 2009-10, the recent significant appreciation of the Australian dollar, especially against the US dollar, if sustained, has the potential to adversely affect commodity export earnings." (See accompanying story).
Phillip Glyde, ABARE’s Executive Director said a forecast increase in winter crop production combined with relatively favourable world prices for many agricultural products "is expected to support farm export earnings in the short term."
Farm export earnings are forecast to increase by 2% to $32.5 billion in 2009-10, following a 16% rise to $31.8 billion in 2008-09. (The 2010 forecast for rural products is up marginally from the $32.1 billion forecast in March).
ABARE said farm higher export earnings are forecast to come from wheat, barley, canola, lupins, peas, rice, raw cotton and sugar.
For energy and minerals, export earnings are estimated to be "significantly lower" for 2009-10, mainly a result of lower contract prices for bulk commodities such as coal and iron ore.
After increasing 36% to $160 billion in 2008-09, export earnings from mining and energy are still expected to remain above 2007-08 levels at $124 billion.
ABARE said the value of energy exports is forecast to drop 34% to around $50 billion in 2009-10 while for metals and other minerals, export earnings are forecast to decline by 12% to around $75 billion in 2009-10.
Its global forecast is more optimistic than the World Bank’s new updated contraction of 2.9%. ABARE’s estimate of 1.3% is the same as the IMF’s.
"While major OECD countries are going through a period of economic contraction, the emerging economies of China and India are still expected to achieve modest growth.
"In 2010, world economic activity is assumed to recover, albeit at a slow rate.
"The pace of economic recovery is expected to be more significant in the emerging economies, while OECD economic growth is likely to remain weak. In aggregate, world economic growth is assumed to be 2.1 per cent in 2010."
ABARE said the index of unit export returns for Australian commodities, in aggregate, is forecast to fall by 21.6 per cent in 2009-10, following an estimated rise of 30.1 per cent in 2008-09.
For farm commodities, the index of unit export returns is forecast to increase by a further 0.5 per cent in 2009-10, after rising by 1.6 per cent in 2008-09.
Unit export returns for Australian mineral resources are forecast to fall by 25.4 per cent in 2009-10, following an estimated rise of 36.2 per cent in 2008-09.
The fall in 2009-10 largely reflects the effects of lower negotiated prices for coking coal, thermal coal and iron ore.
