An indecisive election result, repeated bouts of stormy weather, and now coronavirus. It is no wonder many in the Ag industry would like to turn back the clock and hit restart on 2020, writes Dáire Brady.
The coronavirus pandemic is causing havoc for global commerce, with stock markets feeling the pressure and companies issuing subtle warnings concerning its impact on earnings. Agriculture is no exception, with industry sectors preparing to minimise exposure arising from price volatility and disrupted supply chains. Although not yet panicking, growing concern exists among global agri-investors about how long the disruption may last.
Global dairy trade for the initial months of 2020 has remained relatively stable, with the latest auction results indicating a drop of 1.2% in the overall index. However, the forthcoming effect on global dairy trade appears to be hazy at best, with mixed opinions arising from various organisations. The latest from Rabobank agribusiness indicates “while the impact of the epidemic on the demand for dairy should be short term, the uncertainty over the actual duration of the impact and the lingering psychological impact could potentially bring meaningful damage to consumption, which then affects the processing, production and import”.
Chinese New Year, synonymous with gifting premium liquid milk products, as well as other premium food products, was severely hindered. This is a worrying trend given that over €541 million of Irish dairy produce was exported to China in 2018. The World Health Organisation (WHO) have actively commended China on their handling of the outbreak, which appears to be having a drastic impact on the rate of new cases daily, approximately 2% of what they were at the beginning of the year. In an effort to boost immunity among the population, the Chinese Government has advised each citizen to consume the equivalent of 300 ml of milk per day. In theory, this would lead to a massive shortage in dairy products, which neither China, nor New Zealand, China’s largest trade partner in terms of dairy produce, could fill. Nate Donnay from INTL FCStone recently predicted a 3%-10% drop in Chinese dairy prices over the coming 12 months, as a consequence of the virus.
IFA National Dairy Chairman Tom Phelan remarked ‘while appreciating the real impact of COVID-19, it was clear that international traders would seek to overplay it for commercial leverage’. The New Zealand milk processor Fonterra, whose exports account for 36% of Chinese dairy imports, have maintained their price and dividend guidance for 2019/20. Both Arla and Friesland Campina have increased milk prices by 1c/kg and 0.5c/kg respectively. Several sources have cited little to no justification for a drop in the milk price in the short-term period.
The poor start to the year has made for difficult grazing conditions to say the least; spring grazing targets on many farms are looking less achievable as the weeks pass by. Rainfall estimates for the initial 2 months of the year from Teagasc Moorepark indicate that twice as much rain has fallen when compared to the equivalent months of last year. Nationally, domestic milk intake by creameries and pasteurisers is back 4.4% on last year, with whole milk sales dropping 4.6% when compared to January of 2019. Livestock slaughter has also seen a decline against the previous year, with cattle, sheep and pigs back 4.0%, 1.9% and 5.9% respectively.
Irish sources have noted that with over 90% of agri-food produce exported annually, the industry is likely to see some form of disruption over the coming weeks, be it in the form of supply chain disruption, or increased price volatility. It appears that agri-food companies have been implementing operational and medium-term contingency plans from the get-go, with several companies restricting travel abroad and formulating measures in preparation for supply chain disruptions.