IT'S "not inconceivable" the Australian dollar could get to $US1.20-$US1.25, and hedging would become a significant challenge.
Federal shadow treasurer Joe Hockey told a lunch at the Sungold Field Days at Allansford last week that investment in Australia and low interest rates in the US could contribute to a possible further rise in the Australian dollar.
Mr Hockey told an audience of MPs, company representatives, farmers and field day sponsors that Ford and General Motors were moving operations back to the US from Mexico - a sign that the US dollar would be depressed for some time.
Last week, Dairy Australia signalled exchange rates would have more of an impact on the opening farm-gate milk price next season than originally thought.
Last week's Dairy Australia Situation and Outlook February update, experts predicted more "downside than upside" for opening prices.
Dairy Australia strategy and knowledge manager Joanne Bills said a volatile and high Australian dollar during the next few months could affect opening price announcements.
Last year there were forecasts the dollar would soften towards the end of this year.
Australian dairy farmers have been sheltered this season from the unfavorable exchange rate by processors hedging product sales and currency exposures, but Ms Bills said softening the blow of exchange rates into the 2012-13 season would depend on how much they could effectively hedge for next season.
"It's what is coming down the pipeline for the 2012-13 season," she said.
Ms Bills said cover for a lower exchange rate would lessen processors' exposure to a higher Australian dollar.
According to the Situation and Outlook update, a "purely exchange rate" impact on farm-gate milk prices could be 30c/kg of milk solids if the Australian dollar rises from $US1.05 to $US1.10.
The Australian dollar averaged US89c last January, according to the Reserve Bank of Australia. It has been at parity with the greenback or higher every month since February last year, with the exception of September when it was US96c.
