Dollar's dip towards US65c lifts ag export hopes

Dollar to US65c by December, but drought drags on export options

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Currency analysts tip the dollar to be down to US65 cents by year's end, but seasonal challenges weigh on ag exporters.

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Farm sector exporters can hardly believe their luck as the Australian dollar creeps lower, and more competitive on global markets.

A year ago the exchange rate was already good news for agricultural exporters, at US73 cents, but currency analysts have tipped within four months it will be down to US65 cents.

That's almost US30c below 2014 levels and nearing the dollar's GFC lows at US62c in late 2008.

Frustratingly, however, drought across much of northern and eastern Australia has eroded the supply base for many farm sector exporters, leaving them hard-pressed to find enough product to cash in fully on the attractive international marketing opportunity.

Our increasingly export-friendly currency should be especially helpful for commodities such as dairy, beef and wine, whose producers are wary of more competition from South America, Eastern Europe, and US exporters seeking new buyers after tariff walls blocked its sales in China.

We're still selling a lot of red meat overseas, but we could probably be selling a lot more - Phin Ziebell, National Australia Bank

"However, some exporters are probably more concerned long-term about finding enough products like meat or dairy for export customers," said National Australia Bank agribusiness economist, Phin Ziebell

"We're still selling a lot of red meat overseas, but we could probably be selling a lot more, particularly lamb, for example.

"A lower dollar certainly adds to the attractiveness of our beef, which sells at the upper end of the market price range, but matching our global competitors on price is not necessarily the issue here."

Mr Ziebell also noted, while the dollar's downward trend in the past month was helpful for Australian export competitiveness, the drop was comparatively modest - about US2c since May.

As a percentage improvement in our trading advantage it had been much less striking than when the currency rapidly fell below parity with the US greenback in April 2013, or even when it dropped below its mid-2014 highs of US93c.

In fact, the exchange rate had actually bounced up to recent peaks around $US73c in April and above US70c last month.

In general, however, the lower currency had given meat and dairy processors and the horticulture sector a welcome chance to reap bigger Australian dollar rewards in their bank accounts back home.

NAB expected Australia's position against the US currency to get even better, likely averaging US67c within a month and US65c by December before rallying slowly to about 69c in a year's time.

Although its latest forecasts were released before this week's financial market jitters wiped almost $60 billion from the value of stocks on the local share market in one day, NAB's currency team tipped the US dollar to hold firm for at least the remainder of the year, regardless of President Donald Trump's efforts to encourage its devaluation.

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That's particularly good news for the wine industry, which has big sales goals in North America.

"We see the US as the market with biggest growth potential," said Australian Grape and Wine chief executive officer, Tony Battaglene.

Wine's a winner

"A lower dollar really works well for us, although if we are heading into a recession it may not help as much as we'd like - and its harder to predict China (Australia's biggest export wine market) after this month's yuan's devaluation.

"I'd also like it better if we had more clarity about how Brexit and European economic trends will impact on our valuable UK trade."

Unlike the livestock sector, drought had only dented wine production, which at 1.73 million tonnes last vintage, was close to average, with the industry well positioned to supply more demand.

The lower dollar already meant growers had benefited from strong export activity with grape price trends rising, and well up in 2019.

Patrick Hutchinson

Patrick Hutchinson

Meat traders would rely on the lower currency to drive their already bullish export sales as far as their cost margins allowed, said Australian Meat Industry Council chief executive officer, Patrick Hutchinson.

Meat margin pressure

While total red meat exports were still rising, shrinking livestock numbers, huge saleyard prices and high energy and labour costs were counter balancing the equation.

"In the past when the dollar dropped lower we could play hard in the market by utilising our margins to drive our competitive position, but now processors have to cover record energy costs, record lamb prices and near-record cattle prices," Mr Hutchinson said.

"While we'll take every chance to be more competitive, our long-term ability to service export and domestic markets will be challenged in the post-drought herd and flock rebuilding phase.

"Having said that, lambing and calving numbers in southern parts of the country are doing pretty well, feedlots are full and lambs are generally coming onto the market a lot heavier than in the past."

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