Falling AUD softening the impact of global dairy price falls

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The lower Australian dollar is continuing to soften the impact of falling global dairy prices providing some comfort to local dairy producers.

As the National Australia Bank’s October Rural Commodities Wrap was released today, Neil Findlay, NAB’s Head of Victoria and Tasmania Agribusiness, said the AUD now looks to be consolidating its position rather than extending losses.

“The AUD fell steadily against the USD for most of September and into early October, sinking below 86.5 US cents by 3 October,” Mr Findlay said.

“However, there has been quite limited movement in the AUD against a range of currencies in the past fortnight.

“NAB expects the AUD to continue to weaken and to fall to 85 US cents by mid-2015.

“While global dairy prices are currently down more than 25 per cent since February, a falling AUD means that our price forecast for 2014-15 is for a drop of less than 13 per cent in AUD terms.”

The lower AUD provided some relief to Australian dairy producers in September, with the 1.4 per cent global price drop for the month translating to a 0.7 per cent increase in AUD terms.

Future falls of the AUD by 1 cent would see local weighted dairy prices rise more than AUD55/tonne, based on September international dairy prices.

“Dairy prices reached all-time highs in February 2014, but since then we have seen prices on world markets fall in response to large Chinese inventories and plentiful global supply,” Mr Findlay said.

“However, there are indications that local processors may not be able to sustain farm gate milk prices and the lower AUD combined with patchy spring rain has seen upward price pressure on feed grain, hay and silage.”

The ban on EU dairy exports to Russia is also impacting prices.

“While Australian dairy exports to Russia represent a very small portion of our AUD 2.6 billion dairy export industry, EU exports to Russia were valued at USD 1.8 billion in 2013-14. The ban has caused these products to move into alternative markets, placing further downward pressure on world prices,” Mr Findlay said.

Overall, the NAB October Rural Commodities Wrap forecasts local dairy production to increase 1.9 per cent.

Climatic conditions remain relatively favourable for many Australian dairy producers.

Mild winter weather and adequate winter rainfall has enabled generally good pasture growth coming into spring, although recent conditions have been more mixed.

Across other commodities, the NAB Rural Commodities Index was relatively steady, recording a very slight fall of just 0.2 per cent in AUD terms as the currency tended lower. In USD terms, the index was down 2.3 per cent. The index is now 4.1 per cent lower in AUD terms than the same time in 2013.

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