As the world closes down the economic conditions are expected to be dire and as a trading nation we can’t escape the fall-out, they say.
Global dairy prices have softened but international milk supply is constrained and that will limit the downside risk.
ANZ has maintained its farmgate milk price forecast at $7.15/kg milksolids for this season but cut next season’s prediction to $6.45, previously $7.10.
That downgrade is based on some more weakness to come in milk powder prices though they will be more robust than many other commodities.
Export beef is now flowing back towards China as the United States covid-19 shutdown starts to bite.
“No matter what market you are supplying, in a crisis period what really counts is the strength of relationships held along the supply chain.”
Farmgate prices for manufacturing cow and bull have fallen 30% and 22% respectively.
ANZ said restrictions on processing capacity and strong demand to get stock killed mean further decreases in schedules are expected.
Farmgate returns for venison are trending down as global conditions for selling high-end products like venison are very challenging.
Exporters are diverting venison into retail channels but that won’t compensate for the loss of restaurant consumption.
Returns for lamb have fallen but stabilised at relatively good levels near $7/kg while markets for mutton and wool are much more challenging.
Processing delays and the weaker NZ dollar have underpinned farmgate values until now, ANZ said.
Demand from China is re-awakening but mainly from supermarkets, not restaurants.
China’s economy has suffered a huge shock and will have further waves as global demand for its manufactured goods slows.
Though our reliance on China is being considered a vulnerability, as that market opens again while others are closing, it is a relative bright spot in an otherwise gloomy global economy.
The world’s population needs to eat while stuck indoors but when times are tough luxury goods tended to be forgone.
In many of our markets we fit in to the luxury end rather than the staple foods categories.
“Although this is where we want to be long-term to command premium prices and build a brand it does mean demand for our goods may not be as inelastic as we think.”
ANZ said a shortage of chilled containers resulted from non-essential goods not being emptied and the boxes returned into circulation.
Airfreight options are also greatly reduced.
However, the cost of shipping is going down because of lower oil prices.
Picking of kiwifruit and apples will provide some logistical nightmares this autumn.
“A lack of cool storage space and a potential shortfall of workers means some fruit may not be picked this season.
“There is a real risk that packhouses and processing plants that operate with a large number of people in a relatively confined area will be subjected to regular shutdowns as they try to limit health risks.”
ANZ economists have picked a 5-6% drop in GDP in 2020 including a 17% decrease in the second quarter.
The unemployment rate will more than double to 8%, to levels not seen since the early 1990s.
