Australia's commodity export earnings are forecast to top a quarter of a trillion dollars, a record in the 2011-12 financial year that starts in nine days time.

According to the latest quarterly report from the Australian Bureau of Agricultural Resource Economics and Sciences (ABARES) released yesterday, total commodity and resource exports will be $256.3 billion.

ABARES acting Deputy Executive Director Kim Ritman said, "This forecast of commodity export earnings in 2011-12 represents an increase of 17.7% from an estimated $217.8 billion in 2010-11. It is an upward revision from the forecast released in March of $251 billion".

The $218 billion estimate for the current year (ending June 30) is around $3 billion lower than the March forecast of $221 billion which shows the impact of the floods and bad weather earlier in the year on mainly coal shipments that won't be made up in time.

ABARES said export earnings for Australian mineral and energy commodities are forecast to be around $218.3 billion in 2011-12, up 20% from the expected $182 billion in 2010-11.

The value of energy exports is forecast to rise by 24.7% to $88.6 billion in 2011-12, reflecting forecast higher prices and export volumes for coal.

For metals and other minerals, export earnings are forecast to rise by nearly 17% to $129.7 billion in 2011-12, largely driven by expected higher shipments and prices for Australian iron ore and gold.

ABARES said export earnings for farm commodities are forecast to be around $34.1 billion in 2011-12, a rise of 6.6% from an estimated $32 billion in 2010-11.

"Farm commodities for which export earnings are forecast to be higher in 2011-12 include wheat, oilseeds, rice, raw cotton, wine, sheep meat and wool.

"For forest and fisheries products, export earnings are forecast to be around $3.9 billion in 2011-12, an increase of 4.6 per cent from their forecast value in 2010-11," ABARES said

The Bureau said the forecasts were based on world growth slowing from 5% in 2010 to 4.1% this year, before recovering to 4.4% in 2012 (which is roughly what the IMF said late last week).

"Emerging economies, particularly China and India, are expected to remain the main driver of world economic growth. In contrast, the prospects for major OECD economies remain subdued as a result of weak private sector demand and concerns over public sector debt," the Bureau said.

"In Australia, rebuilding from the effect of adverse weather events in early 2011 is expected to increase economic activity in coming months.

"In preparing this set of commodity forecasts, the Australia dollar is assumed to average around US101c and TWI 75 for 2011-12 as a whole. While the Australian dollar is assumed to remain strong in the short term, significant volatility in the Australian exchange rate is likely to occur. This is because movements in a floating currency, such as the Australian dollar or the US dollar, can be significantly influenced by changes in financial market sentiment.

"For example, when looking back over the past year, the Australian dollar has been as low as US84c in early July 2010 and as high as US110c in early May 2011.

"The index of unit export returns for Australian commodities, in aggregate, is forecast to rise by 9.5 per cent in 2011-12, following an estimated increase of 25.9 per cent in 2010-11.

"The expected increase in 2011-12 largely reflects higher prices for energy and minerals commodities on world markets.

"For farm commodities, the index of unit export returns is forecast to decline by around 1 per cent in 2011-12, after an expected rise of 10.8 per cent in 2010-11.

"Forecast lower world prices for wheat, corn, rice, cotton and sugar are expected to more than offset forecast increases for wool, soybeans and some dairy products.

"Unit export returns for Australian mineral resources are forecast to rise by 11.2 per cent in 2011-12, after an expected increase of 28.8 per cent in 2010-11.

"The rise in 2011-12 largely reflects the effects of higher world prices for coal, iron ore and gold.

"In 2011, price increases for most minerals and energy commodities are expected to be supported by strong growth in demand associated with infrastructure construction and manufacturing output.

"Price increases in 2011 will also be supported by weak supply growth for some commodities, reflecting a combination of weather-related disruptions and delays to the start-up of new projects.

"In 2012, minerals and energy commodity demand is expected to increase, underpinned by assumed stronger economic growth in most economies.

"Production for most commodities is expected to increase-assuming that production is relatively uninterrupted-as projects start up in a number of regions.

"The strong growth in production in 2012 is expected to place downward pressure on prices for a number of commodities, such as iron ore, thermal and metallurgical coal, aluminium and nickel."

The Bureau said that for that reason, "Unit returns for energy exports are expected to increase by 13.7%t in 2011-12, following a forecast rise of 25.5% in 2010-11.

"For metals and other minerals, unit export returns are expected to increase by 9.4 per cent in 2010-12, after an estimated rise of 31.3 per cent in 2010-11."

In 2011-12, the volume of mine production is forecast to rise by 10%, having increased by an estimated 2% in 2010-11.

The Bureau said this forecast increase in mine production in 2011-12 is based on the assumption of a year largely free of major production disruptions.

Copyright Australasian Investment Review.
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