Cold coronavirus reality gnaws at ag markets despite Aussie successes

COVID-19 brings cheap ag inputs, low $A and a nasty recession: Rabobank


Every market serviced by Australian agricultural exporters is effectively now in a recession likely to last until 2022


Farmers' fertiliser and fuel costs are likely to stay at unusual lows until next year, but coronavirus has hit overseas so hard economic growth could be struggling in most farm export markets for another 18 months, at least.

International agribusiness lender Rabobank is forecasting a severe global recession and slow recovery, with every market serviced by Australian agricultural exporters effectively now in recession.

With the exception of China, South Korea and India, the bank predicted any recovery during 2021 would not be strong enough to offset the growth slump expected in key economies this year.

The world economy was set to contract 2.6 per cent on 2019 results to just 1.2pc.

However, despite current global market disruption Australia had navigated the past few months of the coronavirus emergency better than, or as well as, anywhere said Rabobank's Australian head of food and agribusiness research, Tim Hunt.

Even if you are selling food, it will be a slow and challenging market into 2021 - Tim Hunt, Rabobank

"Government policy response supporting agriculture has kept supply chains open, maintaining exports and admirably managing to get crop chemical and fertiliser into the country to service farmers needs," he said.

"But even if you are selling food, it will be a slow and challenging market into 2021 because a lot of consumers around the world and domestically will feel the pinch for some time.

"Coronavirus has already generated long unemployment queues, most notably in the US, but even Australian jobless numbers are forecast to reach 10pc."

Fuel, fert bonus

On the other hand, analyst Wes Lefroy noted global prices for fertiliser were likely to stay historically low for at least until spring - well timed for Australian farmers who import almost two thirds of their nutrient needs between April and July.

Poor global demand and ample stocks were set to suppress oil prices until at least December, ensuring historically low farm diesel prices.

Although China currently leads the recovery from the pandemic and has re-opened most food service outlets, operators such as Starbucks and Yum! Brands expected a slow return to normal food buying habits.

Rabobank researchers tipped food service sales would be about 30pc behind last year for the April to July period and suspected the whole Chinese economy would recover "more slowly than most think".

"Data on electricity and public transport use suggest activity remains piecemeal," the bank reported in its latest COVID-19 update.

Chinese consumers were cautious about returning to eating out and government restrictions on group dining and dish sharing meant banquets would take time to regain favour.

That did not bode well for premium Australian red meat exports and our wine industry which had already felt a significant slump in sales China, a concern now compounded by reduced wine consumption in Spain and Italy during the lockdown which left rising inventories in Europe.

With US wine stocks also high, Rabobank horticulture analyst Hayden Higgins tipped intensifying competition in all key markets for 2020.

However, Mr Hunt noted the COVID-19 fears had hit US meat processors so hard domestic abattoir output was down 30pc, driving up retail prices and opening American doors to prime lean Australian beef sales.


Fortunately, unlike the US and Europe, the Australian currency had fallen since the global pandemic hit - as low as US57 cents - making exports easier to sell.

Although the Aussie dollar had rebounded to US65c in the past month, Rabobank foreign exchange pundits found it "difficult to remain optimistic about the outlook" and tipped a slip to around US60c by June, partly because key trading partner China may not recover as well as hoped.

US-China trade jitters

Also worrying was the risk of more China-US trade friction, with president Donald Trump openly considering slapping more tariffs on Chinese imports as retribution for what he saw as the pandemic problems caused by China.

Unlike Australia, US farm commodity prices have fallen during the crisis - down 10pc to 30pc.

"Hostilities will negatively impact on Chinese economic prospects and, with it, Australia," Rabobank's report said.

While Australian farm commodities such as wool and cotton already faced challenging prospects because of a dramatic downturn in global apparel sales (down 54.5pc in the US alone), horticulture exporters were heartened by a rise in Chinese buying in early 2020 and an increased appetite for fresh produce.

However, Australia's total sales of fruit and nuts to overseas markets slowed in January and February.

In the dairy sector, while Rabobank tipped milk price slide as global market fundamentals were undermined by food service closures worldwide and rising northern hemisphere volumes, favourable seasonal prospects, good livestock trading conditions and lower feed costs would help farmgate margins.

The story Cold coronavirus reality gnaws at ag markets despite Aussie successes first appeared on Farm Online.


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