Rabobank flags rising global dairy prices, warns of downside risks ahead
While global dairy commodity prices continue to climb in most key exporting countries, the second half of the year is expected to bring increased downside risks.
In its March Agribusiness Monthly Report, the specialist rural banker says that in 2019, 31% of the sector’s exports by value were destined for China.
Rabobank estimates that around 15% of all products coming off NZ farms are now being shipped to China. It points out that NZ beef, sheepmeat and cheese products are especially exposed to the Chinese foodservice industry.
“Secondary markets exist for NZ products outside of China, but usually they pay less for products typically shipped to China,” the report says.
It says, in the last week of February, anecdotal evidence suggested that logistics were improving in China. However, the bank warns that any reacceleration of infection rates in China would set any recovery back significantly.
In late February, coronavirus made its first appearance in a wide range of countries and gained a significant foothold in South Korea, Iran, and Italy.
“Clearly, its impacts will be worse if coronavirus gains a foothold in NZ’s other important export markets and globally important economies, like Japan and the US,” Rabobank adds.
It says the impact of coronavirus will also depend on how China fares.
“If the virus is contained in China, the NZ food and agri industry will be better placed to weather the storm of its spread to other markets.”
Meanwhile, bank suggests the sector is likely to gain some offset to the virus’s spread via exchange rates.
“The worse the virus gets, the lower the New Zealand dollar will fall,” the report concludes.
“Other market developments may help reduce the impact of the virus on some commodities. But the industry cannot hope to avoid lower pricing and a slowdown in sales if a pandemic ensues.”
