Concerns are growing over the impact of COVID-19 (coronavirus) on dairy trade, as we move beyond New Zealand’s peak milk-producing months and collections tail-off as per their seasonal trend.
This is according to Peter Meehan, senior commodity analyst at INTL FCStone - a multi-national financial services firm that trades globally in all asset classes.
Speaking to AgriLand, he said: "The impact of COVID-19 has weighed heavily on global dairy markets in recent weeks - as uncertainty as to its impact on Chinese demand for dairy commodities and supply-chain logistics looms large over markets."
For the moment, Peter says a significant proportion of the potential price negativity caused by COVID-19 has been offset by the ongoing drought in New Zealand’s North Island.
However, that said, we have now moved well beyond New Zealand’s peak milk-producing months.
"So there’s now a sense that the impact of COVID-19 will begin to win that recent tug-of-war, putting further pressure on dairy prices in the coming weeks," Peter highlighted.
Port capacity has been severely curtailed
We understand Chinese port capacity has been severely curtailed by reduced staffing which has led to a backlog of vessels waiting to unload.
"Internal logistics are also heavily impacted by staffing issues, while the transportation of medical supplies is being prioritised - as efforts continue to stop the spread of the virus."
Decline in the number of people dining out
Furthermore, there is also a decline in the number of people dining in restaurants, fast-food outlets etc. Peter explained that this has also led to a "fall in demand for dairy ingredients".
This in turn is further impacting on dairy commodity consumption.
The effects of this have been reflected in the latest Global Dairy Trade (GDT) auctions which, after posting back-to-back gains at the start of 2020 (+4.5%), have declined by 7.4% over the February auctions.
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Only for the dryness concerns in New Zealand lending some support to prices, this decline could have been far more severe, Peter added.