Coronavirus plays on the mind of agri investors worldwide

The impact of coronavirus has played out across global financial markets in the past two weeks, with stock markets tumbling and companies (including heavyweight asset manager BlackRock) issuing warnings about the impact on earnings.

Agriculture is no exception and while none of the investors we’ve spoken to are panicking, there is growing concern about how long the disruption will last.

Australian agriculture is vulnerable, due to its dependence on exports in areas like wool, beef, wheat and cotton – especially so with China now becoming one of the country’s biggest export markets for several of those commodities.

Rabobank this month revised down its 2020 commodity outlooks in large part due to measures that are being taken across the world to reduce the spread of the virus, with soybeans and cotton highlighted as two products that are likely to see reduced demand.

Australian Bureau of Agricultural and Resource Economics chief commodity analyst Peter Gooday warned this week: “Livestock prices, medium-term, are expected to soften but remain high, although coronavirus poses a significant risk as Chinese demand for agricultural products has declined under restrictions put in place to contain the outbreak, particularly for items like seafood and wine.”

Rock lobster exports have stalled. China is usually the sector’s biggest export market, accounting for 95 percent of sales and hundreds of millions of dollars, but there have been no regular shipments from Australia to China since the end of January.

Beef has seen a slowdown. Rural Funds Management managing director David Bryant said in an earnings call this week that exports had slowed to almost zero in Q1 2020.

Beef is generally consumed outside the home in China at restaurants and markets, he said, but there were signs that product was beginning to move again and demand was picking back up (Bryant noted that Rural Funds Group’s lessees are bearing the exposure, rather than the listed company itself).

Timber has also had issues, with New Forests CEO David Brand telling us last week that New Zealand softwood exports had been disrupted.

A spokesman for New Zealand Super Fund told us that it had actually reduced sales to export markets from its domestic timber holdings, which it is not alone in doing.

“This is done by focusing harvest on producing a higher proportion of domestic-type logs for which the market remains strong [alongside] some slight reductions to overall production. In recent days, we received some small orders supported with letters of credit,” he said.

For wine, the virus emerged just before Chinese New Year, the biggest sales period of the year for wine in China.

A market source told Agri Investor that Carlyle Group, the private equity owner of Accolade Wines, was continually assessing the situation and expected to see some drop-off in demand in China from reduced demand in restaurants, but that it was too early to tell what the final impact would be. They also said that Carlyle remained positive on the long-term prospects for growth of the Accolade Wines business in China.

Australian Grape & Wine chief executive Tony Battaglene said that many in the sector were “nervous and cautious”, and that the main issue was congestion in supply chains in south-east Asia, with product stuck at ports.

This is less of an issue for wine, of course, than it is for more perishable goods like beef. This led to beef supplier Kilcoy Global Foods chartering a cargo plane from Sydney last week to supply hundreds of tonnes of chilled beef into China.

We might begin to see more creative thinking like this to circumvent traditional supply chains if the crisis drags on.

All of this highlights the importance of having strong supply chains in place and could even lead to a renewed emphasis on premium produce.

“The spread of coronavirus is yet another reminder to us of the importance of people and communities maintaining good health. This event further emphasizes the growing demand for pure, healthy and fresh foods which Australia has an abundance of,” David Goodfellow told Agri Investor, who is managing director and chief executive officer of newly-formed agribusiness venture The Clearbrook Group.

So, there is a potential upside. But producers and investors, many of whom have come off a difficult season weather-wise, will be hoping that the crisis does not drag on too long.

Contact the author at daniel.k@peimedia.com