Australian commodities – December quarter

Economic overview

Neil Thompson

• After contracting sharply in late 2008 and early 2009, world economic recovery is underway. Activity in the world economy is assumed to increase by 3.4 per cent in 2010, following an estimated decline of 1.1 per cent in 2009.
• In the short term, the recovery in emerging and developing economies is expected to be the major stimulus to world economic growth. The expansion in OECD economies is assumed to be relatively subdued with high unemployment continuing in much of 2010.
• A factor that could significantly affect the performance of the export orientated commodity sector is the recent significant appreciation of the Australian exchange rate. A markedly higher value of the Australian dollar, if sustained, will adversely affect commodity export earnings.

The world economy

The recovery of the global economy has begun, with a significant improvement in world financial market conditions. However, the pace of world economic recovery is expected to be gradual and the outlook for employment in major OECD countries remains weak. Emerging and developing economies are further ahead on the road to recovery, led by China, India and other emerging economies in Asia. Over the past 12 months or so, emerging and developing economies have withstood the financial turmoil much better than previously expected.

The major factor contributing to the world economic recovery is strong public policy responses across OECD and emerging economies, which have allayed concerns about systemic financial collapse and restored consumer and business confidence. Nevertheless, the world economic slowdown associated with the global financial crisis was significant. For 2009 as a whole, world economic activity is estimated to contract by around 1.1 per cent.

Prospects for world economic growth in 2010

Although world economic recovery is gaining momentum, there are a number of constraints that could delay a major recovery in 2010. In particular, consumption and investment in OECD countries are expected to strengthen only gradually, held back by rising unemployment and high excess capacity. This will especially be the case in the United States and some European countries such as the United Kingdom. In the United States, for example, consumers are unlikely to increase spending markedly in the short term, given an unemployment rate of more than 10 per cent in late 2009.

In preparing this set of commodity forecasts, the world economy is assumed to achieve growth of 3.4 per cent in 2010.

In the OECD area, economic activity is assumed to grow by 1.6 per cent in 2010, following a decline of 3.5 per cent in 2009. Among the major OECD economies, the United States and Western Europe are expected to achieve only a gradual economic recovery, supported mainly by continued fiscal stimulus and accommodating monetary policy. For Japan, the recovery in export performance and industrial production in recent months is encouraging and, if sustained, will be the basis for improved economic activity in 2010.

For emerging and developing economies as a whole, economic growth is assumed to expand by 6 per cent in 2010, following weak growth of 3.3 per cent in 2009. Leading indicators from the Asian economies continue to show signs of improvement. In particular, the economic outlook for China and South-East Asian economies has strengthened, with growth in domestic demand supporting a faster than expected recovery.

However, there are considerable downside risks in the current world economic outlook. The major challenge is associated with weak private demand in the OECD region. With sharply increasing fiscal deficits in OECD countries, many governments are confronted with the difficult choice of whether to maintain fiscal stimulus in the short to medium term. Given relatively weak domestic demand, OECD economic activity could be adversely affected if fiscal stimulus is removed prematurely.

The situation is more varied in many emerging economies. For example, in China there are concerns about ‘overheating’ or ‘asset price bubbles’ emerging in some sectors of the economy. There is a strong possibility that the authorities in emerging economies will begin tightening their fiscal and monetary stance much sooner than in major OECD economies.

Short-term risks are, of course, not only on the downside. As has been evident over the past year or so, a more rapid than currently expected increase in world economic activity is possible, especially if consumer confidence and business sentiment continue to improve. A quicker recovery in consumer spending and business investment in the OECD region will markedly improve economic performance in OECD countries and prospects for emerging and developing economies through the trade linkages and investment flows.

Economic prospects in Australia’s major export markets

United States

After contracting significantly in the first half of 2009, economic growth in the United States has resumed. Real gross domestic product is estimated to have expanded at an annualised rate of 2.8 per cent in the September quarter 2009, after contracting by 0.7 per cent in the June quarter and 6.4 per cent in the March quarter.

Key macroeconomic assumptions
World			2007		2008		2009	f	2010	f
Economic  growth
OECD	%		2.7		0.6		– 3.5		1.6
United States	%		2.1		0.4		– 2.5		2.0
Japan	%		2.3		– 0.7		– 5.4		1.5
Western Europe	%		2.7		0.7		– 4.3		1.0
– Germany	%		2.5		1.2		– 4.9		1.2
– France	%		2.3		0.3		– 2.4		1.2
– United Kingdom	%		2.6		0.7		– 4.6		0.9
– Italy	%		1.6		– 1.0		– 5.0		0.8
Korea, Rep. of	%		5.1		2.2		– 1.0		3.6
New Zealand	%		3.2		0.2		– 1.6		2.2
Developing countries	%		8.6		6.4		3.3		6.0
– non-OECD Asia	%		10.6		7.6		6.1		7.8
South-East Asia  a	%		6.3		4.8		0.8		4.5
China  b	%		13.0		9.0		8.2		9.5
Chinese Taipei	%		5.7		0.1		– 3.5		4.0
Singapore	%		7.8		1.1		– 2.5		4.5
India	%		9.4		7.3		6.5		7.4
– Latin America	%		5.7		4.2		– 2.5		2.9
Russian Federation	%		8.1		5.6		– 7.5		3.0
Ukraine	%		7.9		2.1		– 14.0		2.7
Eastern Europe	%		5.5		3.0		– 5.0		1.8
World  c	%		5.2		3.0		– 1.1		3.4
Industrial production
OECD	%		2.4		– 2.5		– 13.2		5.2
Inflation
United States	%		2.9		4.1		– 0.4		1.7
Interest rates
US prime rate  d	%		6.6		5.1		3.3		3.3
US exchange rates  e
Yen/US$			118		104		94		98
Euro/US$			0.73		0.68		0.72		0.67
Australia			2006-07		2007-08		2008-09		2009-10	f
Economic growth	%		3.2		3.7		1.0		1.5
Inflation	%		2.9		3.4		3.1		2.3
Interest rates  g	%		6.9		7.7		6.3		6.0
Australian exchange rates
US$/A$			0.78		0.90		0.75		0.89
Yen/A$			93		99		75		84
TWI for A$  h			65		70		60		70
a Indonesia, Malaysia, the Philippines, Thailand and Viet Nam. b Excludes Hong Kong. c Weighted using 2008 purchasing-power-parity (PPP) valuation of country GDPs by the IMF. d Commercial bank prime lending rates in the United States. e Average of daily rates. g Large business weighted average variable rate on credit outstanding. h Base: May 1970 = 100. f ABARE assumptions. Sources:ABARE; ABS; IMF; OECD; RBA.

A significant increase in government spending has been the main factor underpinning the improved US economic performance. The stimulus package (US$787 billion) implemented since late 2008 has provided support for consumer spending and residential investment. Partial indicators released recently suggest that the housing market may have stabilised. Government incentives for first home buyers have increased sales of existing homes and stabilised house prices. Nevertheless, stocks of unsold houses remain high, meaning house prices are unlikely to increase significantly in the short term. The US Government has recently extended the first home buyer tax credit to the end of April 2010, which is expected to provide support to housing activity in the near term.

Activity in the manufacturing sector is also showing signs of recovery, with industrial production recording small rises in recent months. The US dollar has depreciated markedly against other major international floating currencies over the past six months, which has improved the competitiveness of US exports on world markets.

Despite the recent improvement in economic activity, considerable concerns remain about the strength and sustainability of US economic recovery. Of particular concern is a marked increase in the unemployment rate, which was at 10 per cent in November 2009. The US economy has lost 7.9 million jobs since December 2007. If higher unemployment has a significant effect on consumer spending, the US economic recovery could prove to be markedly slower than currently expected.

Monetary and fiscal support is expected to continue in the short term. There has been a significant loosening in fiscal stance in the United States, mainly as a result of the current economic downturn. According to the US Congressional Budget Office, the US budget deficit is estimated to have reached around 10 per cent of gross domestic product in fiscal year 2009 (October 2008 to September 2009). The federal funds rate has been reduced to near zero. The significant loosening in both monetary and fiscal stances has raised concerns about the implications for US economic prospects over the short to medium term. There are questions about the extent of continued support to stimulate economic growth and also the balance to be struck between short-term requirements and medium-term fiscal consolidation.

In preparing the current set of commodity forecasts, the US economy is assumed to contract by 2.5 per cent in 2009, mainly because of the sharp decline in the first half of the year. Growth is expected to strengthen gradually in the short term, reflecting the continuing fiscal support and improved activity associated with the inventory cycle and the housing market. However, given the effect of rising unemployment, the temporary nature of the fiscal stimulus and subdued growth in many major trading partners in the OECD region, economic growth is assumed to remain relatively low at 2 per cent for 2010 as a whole.

There is considerable uncertainty in the current outlook for the US economy. The major downside risk stems from the weakness in household and company balance sheets and rising unemployment, which may weigh on private consumption and business investment, leading to weaker than assumed economic growth. On the upside, the strong policy response and a rapid recovery in emerging markets, especially in China and South-East Asia, could lead to a significant improvement in consumer and business confidence and hence stronger economic growth in 2010.

China

Economic growth in China continues to rebound strongly from the slowdown in late 2008 and early 2009. Expansionary monetary and fiscal policies provided the impetus for real gross domestic product to grow at a year on year rate of 8.9 per cent in the September quarter 2009, following growth of 7.9 per cent in the June quarter and 6.1 per cent in the March quarter.

The 4 trillion yuan (US$586 billion) fiscal stimulus package introduced by the Chinese Government in November 2008 continues to provide support for the economy. Public infrastructure spending and private construction have increased markedly with urban fixed asset investment rising, year on year, by 32.1 per cent in the first 11 months of 2009. This compares with average growth of 25.5 per cent in 2008.

Partial indicators released recently suggest investment expenditure and consumer spending are underpinning growth in industrial production. For example, growth in retail sales, although weaker than in 2008, reached 15.3 per cent year on year in the first 11 months of 2009. While export performance remains relatively weak, expected improvements in economic activity in the United States and the European Union should begin to provide support to export growth in the foreseeable future.

Looking forward, growth in investment spending and household consumption will continue to be the basis for economic growth, while the recovery in exports could be gradual. In preparing this set of commodity forecasts, economic growth in China is assumed to be around 8.2 per cent in 2009, before strengthening to an average of 9.5 per cent in 2010.

There are both upside and downside risks surrounding the economic outlook for China. One major downside risk is associated with the pace of economic recovery in major OECD countries, especially the United States and Western European countries. Because the OECD economies are major destinations for China’s exports, the strength of their economic recovery, and hence import demand, could have important implications for China’s export performance. Given recent significant growth in industrial production in China, there are considerable concerns in the marketplace about its sustainability and the implications for minerals and energy commodity demand if a strong recovery in China’s exports does not eventuate in the near term.

Because China’s economic performance in recent years has consistently exceeded market expectations, there remains an upside risk in the current outlook that growth in domestic demand could be stronger than assumed. Given the significance of Chinese demand in world commodity markets, especially for minerals and energy, a stronger economic performance in China could lead to world commodity prices averaging higher than currently forecast.

Japan and the Republic of Korea

After contracting in late 2008 and early 2009, the economies of Japan and the Republic of Korea have continued to recover. In Japan, real gross domestic product grew at an annualised rate of 1.3 per cent in the September quarter 2009, compared with 2.7 per cent in the June quarter and a decline of 12.2 per cent in the March quarter. In the Republic of Korea, real gross domestic product expanded by 2.9 per cent in the September quarter 2009, following growth of 2.6 per cent in the June quarter.

Rebounding economic activity in both countries largely reflects the effects of stimulus packages implemented by their respective governments. There have also been gradual improvements in exports, mainly stemming from higher demand in China as a result of the Chinese Government’s stimulus package. However, compared with a year earlier, export performance remains weak in both countries. In Japan, exports declined year on year by 23 per cent in October 2009, following a fall of 31 per cent in September. This compares with a decline of 41 per cent in May. In November 2009, exports from the Republic of Korea rose for the first time in 13 months, albeit from a low base.

In the short term, economic growth in both countries is expected to be dependent on domestic demand, which could remain volatile. For example, in the Republic of Korea, employment has increased in recent months, with the unemployment rate at 3.2 per cent in October 2009. However, industrial production growth slowed year on year to 0.2 per cent in October 2009, following an 11 per cent rise in September. In Japan, the unemployment rate fell slightly to 5.1 per cent in October 2009, while the decline in industrial production slowed to 15.1 per cent in the same month, compared with 18.4 per cent in September.

Despite the recent improvements, economic growth is likely to be modest in Japan in the next few quarters, as the effect of the stimulus package gradually subsides. There are also concerns that the relatively high unemployment rate could affect consumer spending, and a stronger yen especially against the US dollar could prolong the weakness in export performance.

Against this backdrop, the Japanese economy is assumed to achieve weak growth of 1.5 per cent in 2010, compared with an estimated contraction of 5.4 per cent in 2009.

Economic activity in the Republic of Korea is estimated to contract by 1 per cent in 2009. In 2010, a recovery in economic growth, and hence import demand, in major OECD countries and continued strong performance in the Chinese economy are likely to provide support for the Republic of Korea. Economic growth in the Republic of Korea is assumed to be around 3.6 per cent in 2010.

Non-OECD Asia

Economic activity in non-OECD Asia has improved in recent months, mainly as a result of strong domestic demand. For example, real gross domestic product in Singapore is estimated to have grown year on year by 0.6 per cent in the September quarter 2009, after declining by 3.3 per cent in the June quarter and 9.5 per cent in the March quarter. In India, the economy expanded year on year by 7.9 per cent in the September quarter 2009 after growth of 6.1 per cent in the June quarter and 5.8 per cent in the March quarter.

Domestic demand across the region has been supported by fiscal stimulus packages and accommodating monetary policies. For example, in Indonesia, the government has implemented a stimulus package that includes tax breaks, subsidies and infrastructure spending equivalent to around 1.4 per cent of gross domestic product, while the central bank has reduced the official interest rate by 300 basis points since December 2008.

Export performance in the region remains weak, although improvement has been achieved in trade with China. For example, exports from Chinese Taipei to China grew year on year by 9.8 per cent in October 2009, compared with a 16.5 per cent decline in exports to the United States in the same month. As world economic activity gradually recovers, industrial production and private investment in non-OECD Asia are expected to increase in response to rising export demand.

In the next few quarters, domestic demand will continue to be the main factor underpinning economic growth in non-OECD Asia, while exports are likely to remain relatively subdued. Against this background, economic growth in non-OECD Asia is assumed to strengthen to around 7.8 per cent in 2010, compared with an estimated average of 6.1 per cent in 2009.

Western Europe

In Western Europe, economic conditions have improved, although the performance of individual economies remains mixed. For the euro area as a whole, real gross domestic product grew by a seasonally adjusted rate of 0.4 per cent in the September quarter 2009, following contractions of 0.2 per cent in the June quarter and 2.5 per cent in the March quarter.

The resumption of economic growth in Germany, France and Italy has largely been a result of increased consumer spending, supported by governments’ incentives and transfer payments to the unemployed and low income groups. There are also tentative signs that export performance is gradually improving. In Germany, exports recorded a monthly increase of 2.5 per cent in October 2009, supported by higher demand from the Asian region.

In contrast, economic activity in the United Kingdom and Spain continues to be weak. In both countries, the sharp decline of house prices has put significant downward pressure on consumer spending and construction activity. In the United Kingdom, credit availability remains an issue, mainly as a result of the continued weakness in its financial sector.

Economic activity in Western Europe is estimated to contract by 4.3 per cent in 2009, reflecting the severe effect of the global financial crisis on employment and business investment. In 2010, economic activity is assumed to gradually recover, averaging around 1 per cent for the year as a whole.

Economic prospects in Australia

Following modest growth in early 2009, economic activity in Australia has strengthened. Real gross domestic product, in seasonally adjusted terms, rose by 0.6 per cent in the June quarter 2009. This compares with growth of 0.4 per cent in the March quarter.

Growth in domestic demand has been a major factor underpinning economic activity in Australia. For example, retail sales, in seasonally adjusted terms, rose by 0.3 per cent in October 2009 from September as a result of improved consumer confidence. Economic activity in Australia has also benefited from a faster than expected recovery of economic growth in its major trading partners, such as China and economies in South-East Asia, with consequent increases in exports, especially for mineral resources.

Looking forward, private sector activity is expected to continue to recover. While export earnings could be adversely affected by a significant appreciation of the Australian exchange rate, especially against the US dollar, an expected strengthening in consumer spending is likely to provide support for general economic activity. Public infrastructure spending is also expected to underpin economic growth in the near term, while the recovery in business investment gains momentum.

Economic growth in Australia is assumed to average 1.5 per cent in 2009-10. This compares with growth of 1 per cent in 2008-09.

Inflation

Inflationary pressures in Australia moderated further in the third quarter of 2009. The consumer price index rose year on year by 1.3 per cent in the September quarter 2009, compared with increases of 1.5 per cent in the June quarter and 2.5 per cent in the March quarter. Contributing most to the slower inflation rate in the September quarter were prices of other financial services (-2.3 per cent), vegetables (-5.6 per cent), fruit (-5.4 per cent), pharmaceuticals (-4.4 per cent) and audio, visual and computing equipment (-2.2 per cent).

Inflationary pressures are expected to remain relatively low in the short term. For 2009-10 as a whole, Australia’s inflation rate is assumed to average around 2.25 per cent. This compares with inflation of 3.1 per cent in 2008-09.

Exchange rate

Over the past few months the Australian dollar has appreciated significantly, both against the US dollar and on a trade weighted basis. The Australian dollar was trading around US91c and TWI 70 in early December 2009, compared with US87c and TWI 67 in early October and US84c and TWI 66 in late August. For the first half of 2009-10, the Australian dollar is estimated to have averaged around US87c and TWI 68.

There are a number of factors that have underpinned the recent significant appreciation of the Australian dollar. In addition to the rapidly improving world economic outlook, which has been perceived by financial markets as the basis for an increase in Australia’s terms of trade, stronger economic performance in Australia relative to other OECD economies and recent rises in Australian interest rates are also likely to have contributed to the increase in the value of the Australian dollar.

Changes in financial market sentiment toward the US dollar may have also significantly affected the recent movements in the Australian exchange rate against the US dollar. Reflecting the sharp increase in the US budget deficit and the relatively weak outlook for the US economy, the value of the US dollar has weakened markedly against other major international floating currencies. The US dollar was trading around ¥88 and €0.68 in early December 2009, compared with ¥96 and €0.71 in early July and ¥98 and €0.79 in early March 2009.

The value of the Australian dollar is likely to remain strong, at least in the short term. The assumed world economic recovery is expected to provide support for demand for mineral resources and, hence, Australia’s minerals and energy exports. Because Australia is in a more advanced stage of economic recovery than in other OECD countries, there is a distinct possibility interest rates in Australia will rise more rapidly than in other OECD countries. However, as economic recovery gathers pace in other OECD countries toward mid-2010, financial market sentiment could turn more favourable toward other OECD countries, placing some downward pressure on the value of the Australian dollar.

Taking the above into account, the Australian dollar is assumed to average around US89c and TWI 70 in 2009-10. This compares with an average of US75c and TWI 60 in 2008-09.

There is considerable uncertainty surrounding the short-term outlook for the Australian dollar. This is because movements in the Australian exchange rate can be significantly influenced by changes in financial market sentiment, leading to strong volatility in the Australian exchange rate. Over the past 12 months, the Australian dollar fluctuated from a low of US63c and TWI 54 in early March to a high of US93c and TWI 71 in mid-November. Since its floating in December 1983, the Australian dollar has had an average annual fluctuation range of more than US10c. Consequently, it remains important for primary producers and exporters to manage the risks associated with fluctuations in the Australian exchange rate.

Outlook for Australia’s commodity sector

Commodity export prices

The index of unit export returns for Australian commodities, in aggregate, is forecast to fall by 23.6 per cent in 2009-10, following a rise of 29.2 per cent in 2008-09. The forecast decline largely reflects sharply lower contract prices for bulk commodities, including iron ore and coal, and the assumed higher average value of the Australian dollar.

For farm commodities, the index of unit export returns is forecast to decline by 6.8 per cent in 2009-10, after rising slightly in 2008-09. Forecast lower world indicator prices for wheat, coarse grains and oilseeds are expected to more than offset the effect of forecast higher wool, cotton, sugar and dairy product prices.

Unit export returns for Australian mineral resources are forecast to fall by 26.4 per cent in 2009-10, following a rise of 35.3 per cent in 2008-09. Unit returns for energy exports are forecast to decline by 37.8 per cent in 2009-10, compared with an increase of 68.8 per cent in 2008-09. Unit export returns for metals and other minerals are forecast to fall by 14.8 per cent in 2009-10, after rising by 12.6 per cent in 2008-09.

Commodity export earnings

The value of Australia’s commodity exports is forecast to be around $162.6 billion in 2009-10, which is a fall of 17.7 per cent from the record of $197.4 billion in 2008-09.

Reflecting a downward revision to winter crop production in the current season and an assumed higher average value of the Australian dollar, export earnings for farm commodities are forecast to be around $30 billion in 2009-10, which is a decline of 6.4 per cent from $32 billion in 2008-09. Farm commodities for which export earnings are forecast to increase in 2009-10 include raw cotton, sugar, chickpeas, peas and rice. However, these gains are expected to be offset by lower export earnings for wheat, barley, canola and livestock and livestock products.

For forest and fisheries products, export earnings are forecast to be around $3.6 billion in 2009-10, which is a decline of 6.7 per cent from 2008-09.

Export earnings from Australian mineral resources are forecast to be around $129 billion in 2009-10, compared with $161.5 billion in 2008-09. The value of energy exports is forecast to decline by 31 per cent to $53.7 billion in 2009-10. For metals and other minerals, export earnings are forecast to fall by 10 per cent to $75.3 billion in 2009-10.

Australian production of mineral resources is forecast to increase by 6.6 per cent in 2009-10, after remaining largely unchanged in 2008-09. Production of metals and other minerals is forecast to increase by 5.3 per cent in 2009-10, following a decline of 3.8 per cent in 2008-09. Production of energy minerals is forecast to increase by 7.6 per cent in 2009-10, after a rise of 4.5 per cent in the previous year.

Major indicators of Australia’s commodities sector
			2004-05		2005-06		2006-07		2007-08		2008-09		2009-10	f	change from previous year
															2008-09	2009-10
															%	%
Commodity exports
Exchange rate		US$/A$	0.75		0.75		0.78		0.90		0.75		0.89		– 16.7	18.7
Unit returns a
Farm		index	100.0		99.5		104.5		116.0		116.7		108.8		0.6	– 6.8
Mineral resources		index	100.0		132.3		145.5		152.1		205.8		151.5		35.3	– 26.4
– energy minerals		index	100.0		136.1		124.4		142.0		239.7		149.0		68.8	– 37.8
– metals and other minerals		index	100.0		129.2		162.1		160.0		180.1		153.5		12.6	– 14.8
Total commodities		index	100.0		123.5		134.6		142.0		183.5		140.2		29.2	– 23.6
Value of exports
Farm		A$m	27 901		27 824		27 900		27 530		32 038		29 982		16.4	– 6.4
– crops		A$m	13 679		13 996		13 086		13 027		16 872		16 042		29.5	– 4.9
– livestock		A$m	14 222		13 828		14 815		14 503		15 166		13 939		4.6	– 8.1
Forest and fisheries products		A$m	3 660		3 687		3 849		3 813		3 872		3 611		1.5	– 6.7
Mineral resources		A$m	69 511		92 616		107 976		117 635		161 526		128 964		37.3	– 20.2
– energy minerals		A$m	29 696		39 328		39 427		45 591		77 868		53 698		70.8	– 31.0
– metals and other minerals		A$m	39 816		53 288		68 549		72 043		83 657		75 266		16.1	– 10.0
Total commodities		A$m	101 072		124 127		139 725		148 978		197 435		162 557		32.5	– 17.7
Farm sector
Gross value of farm production b		A$m	36 537		38 696		36 312		43 840		44 812		42 304		2.2	– 5.6
– crops		A$m	18 717		20 901		18 060		24 320		25 012		23 798		2.8	– 4.9
– livestock		A$m	17 820		17 796		18 252		19 521		19 800		18 506		1.4	– 6.5
Farm costs		A$m	29 243		31 276		31 413		37 262		36 962		35 524		– 0.8	– 3.9
Net cash income  c		A$m	12 582		11 309		10 045		10 798		8 416		11 571		– 22.1	37.5
Net value of farm production  d		A$m	7 294		7 420		4 898		6 579		7 850		6 780		19.3	– 13.6
Farmers’ terms of trade		index	91.7		91.0		94.1		91.0		91.0		89.8		0.0	– 1.3
Volume of farm production		index	107.8		111.5		95.3		104.8		111.5		111.3		6.4	– 0.2
– crops		index	111.3		119.6		84.7		105.2		119.9		122.1		14.0	1.8
– livestock		index	103.1		102.6		105.4		102.7		101.0		98.5		– 1.7	– 2.5
Crop area and livestock numbers
Crop area (grains and oilseeds)		’000 ha	23 809		22 111		21 054		23 237		23 417		23 298		0.8	– 0.5
Sheep		million	100.6		91.0		85.7		76.9		71.6		68.1		– 6.9	– 4.9
Cattle		million	27.3		28.1		28.3		27.3		27.0		27.3		– 1.1	1.1
Minerals and energy sector
Volume of mine production		index	118.6		118.0		121.3		120.7		121.0		129.0		0.2	6.6
– energy		index	113.4		111.6		118.8		116.7		121.9		131.2		4.5	7.6
– metals and other minerals		index	123.5		124.2		124.2		124.7		119.9		126.3		– 3.8	5.3
Gross value of mine production		A$m	66 731		88 912		103 657		112 929		155 065		123 805		37.3	– 20.2
New capital expenditure  e		A$m	10 843		19 659		23 621		29 201		37 977		37 880		30.1	– 0.3
Exploration expenditure		A$m	2 073		2 503		3 940		5 496		6 034		na		9.8	na
– energy		A$m	1 192		1 484		2 533		3 501		4 293		na		22.6	na
– metals and other minerals		A$m	881		1 018		1 407		1 995		1 741		na		– 12.8	na
Employment
Agriculture, forestry and fishing		’000	357		348		350		353		358		na		1.4	na
Mining		’000	105		129		135		145		167		na		15.3	na
Australia		’000	9 767		10 070		10 353		10 621		10 741		na		1.1	na
a Base: 2004-05 = 100. b For a definition of the gross value of farm production see table 21. c Gross value of farm production less increase in assets held by marketing authorities and less total cash costs. d Gross value of farm production less total farm costs. e Mining industry (ANZSIC subdivision B) only. s ABARE estimate. f ABARE forecast. na Not available. Note:ABARE revised the method for calculating farm price and production indexes in October 1999. The indexes for the different groups of commodities are calculated on a chain weight basis using Fishers' ideal index with a reference year of 1997-98 = 100. Sources:Australian Bureau of Statistics; ABARE.