Agri wakes up to a new world

Low global growth and trade tensions rather than interrupted supply chains and lockdown provisions will likely guide consumer demand and future prices.

"In Australia, the outlook is relatively upbeat with a strong season and low livestock numbers among many reasons for producers to feel optimistic.”

The latest outlook from the World Bank suggests a contraction of over 5 per cent in the global economy. While the outlook for many industries is gloomy, agriculture is a brighter light on the horizon with global agricultural commodity prices remaining relatively stable in the face of the pandemic. 

{CF_AUDIO}

In Australia, the outlook is relatively upbeat with a strong season and low livestock numbers among many reasons for producers to feel optimistic However this is tempered by global risk on the horizon including simmering trade tensions with China. While the Australian agriculture industry is understandably nervous the Chinese Government will extend trade restrictions from the Australian barley and beef industries to other major Australian exports, to-date the Chinese export market has held up strongly.

{CF_INFOGRAM}

A strong start to the cropping season has most producers looking forward to good returns although wheat prices are facing some downward pressure from strong global production and stocks. Offsetting that pressure are concerns over American and European seasonal conditions.

For beef and sheep producers, livestock prices are being supported by low herd and flock numbers and the drive to rebuild national stock numbers after the drought. While Australian cattle and sheep prices remain strong, internationally cattle and sheep prices have fallen in response to COVID-19. 

{CF_INFOGRAM}

{CF_INFOGRAM}

Similarly, the Australian dairy industry, while experiencing lower opening prices than last year, is being insulated from global trends as processors compete for limited supply. Wool and cotton producers are facing into the headwinds of falling global economic growth, as demand for both wool and cotton clothing is strongly correlated with economic growth levels and consumer confidence.

{CF_INFOGRAM}

While strong domestic prices and production should signal a good financial season for producers – risks on the global horizon raise a series of difficult questions for many producers. How much and for how long should beef and sheep producers invest in restocking while global prices are looking subdued? What should wool producers consider the new ‘norm’ for the Eastern Market Indicator? Will government efforts to support dairy prices in the US and EU lead to longer term downward pressure on prices? And what of the Australian dollar? At low levels it has provided valuable insulation but at closer to A70c than A60c, we are more exposed to global characteristics.

Across all these questions, and more, many producers are cautiously optimistic as COVID-19 washes through the global economy.

Madeleine Swan is Associate Director, Agri Research at ANZ

Click here to read the full ANZ Agri InFocus report for July 2020