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Dairy producers benefit from falling Aussie dollar

An interview with Ms Judith Swales, the new Australian head of New Zealand-based dairy co-operative Fonterra (ASX: FSF), conducted by the Australian Financial Review has highlighted that even though the dairy industry has undergone substantial rationalisation over the past decade, there is still excess capacity within the industry.

While excess capacity issues will no doubt need to be tackled, the capacity issue doesn’t appear to be hurting the share price of a number of the major listed players. This is likely explained by the falling Australian dollar, which is providing significant benefits to dairy exporters. A lower dollar makes our export products more competitive in international markets.

Since its listing in December 2012, Fonterra’s share price is up 21%; over the same time period the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) is up about 8%. Bega Cheese (ASX: BGA) has also performed well, with its share price up 33%, while Freedom Foods (ASX: FNP), which has a shareholding in the successful A2 Milk brand, has blitzed the index with its share price climbing 167% since December.

Foolish takeaway

Companies exposed to a falling Australian dollar continue to perform well. With expectations by many economists that the dollar could fall further, agricultural-exposed companies are one area that savvy investors are focusing on.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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