Agri commodities: uncharted water

As we travel the uncharted waters of COVID-19, it’s hard enough to understand what is happening, let alone what might happen. To date though, Australian farming appears to be standing up particularly well. At least comparatively.

Click image to zoom Tap image to zoom

Food is essential to everyone every day and the empty supermarket shelves are a stark reminder to our population. Of course, this in itself doesn’t mean the business of agribusiness is plain sailing.

"The element of uncertainty on both the human health and economic fronts - as opposed to immediate impact - is top of mind.”

In wine and seafood in particular, there has been dramatic impact as Australia’s significant and promising export markets have been interrupted at a critical time. The overseas supply chain has developed bottlenecks at port and air freight has been severely restricted as passenger flights are all but grounded.

Click image to zoom Tap image to zoom

There is the continuing possibility of domestic supply chain disruption as the regulatory environment twists and turns with the priority being restricting the spread of the coronavirus. The nature of food consumption is changing through the effective ban on eating out as well as the desire of consumers to build home reserves as protection against a potential ‘lock down’. And those agribusinesses and farming operations that are labour intensive have been forced to give enormous attention to engineering their workplace around social distancing and outbreak contingencies.

All of this comes at some cost. The local - and indeed global - economic downturn inevitably brought about by shutting down so many facets of everyday life will impact demand for Australia’s major agri commodities to varying degrees.

But for most, it seems the element of uncertainty on both the human health and economic fronts - as opposed to immediate impact - is top of mind. Otherwise a strong and profitable farm gate commodity price environment can be seen, albeit down from recent highs.

Click image to zoom Tap image to zoom

Australia’s mainstay commodities continue to be well supported by a strong balance of domestic and international demand in those situations where trade can freely occur. A low Australian dollar and record low borrowing costs tend to support Australian farmers and exporters. Recent rains in eastern Australia, improving conditions in Western Australia, and the Bureau of Meteorology short term outlook, are very encouraging for the upcoming season.

While the full impact of the pandemic is not yet known in relation to red meat markets, slightly softer prices would still make for profitable selling and more affordable buying for re-stockers.

Grain markets are hard to pick, with oilseeds perhaps particularly vulnerable, but the seasonal outlook at least is good. After a long run of record cattle on feed, it will be interesting to see how domestic feed need intersects with a new crop and international feed and milling demand.

Click image to zoom Tap image to zoom

But of course December is a long way away and anything can happen any time in an environment like this.

Alanna Barrett and Madeleine Swan are Associate Directors for Agribusiness Research & Michael Whitehead is Director of Client Insights at ANZ

Click here to read the full report

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

editor's picks

19 Apr 2020

Gonski: keeping an open mind in crisis

Andrew Cornell | Past Managing Editor, bluenotes

ANZ Chairman says the board is balancing the needs of all stakeholders – including shareholders – in responding to COVID-19.

10 Feb 2020

Australian economy suffers virus symptoms

Felicity Emmett & David Plank | Senior Economist & Head of Australian Economics, ANZ

Growing uncertainty surrounding the coronavirus will have a large impact on near-term GDP growth in Australia.