Ag shielded from virus impact

Ag shielded from COVID impact

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The direct impact on agriculture from COVID-19 seems to be minimal at this stage.

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It's probably a good time to be in an industry like agriculture. The direct impact from COVID-19 seems to be minimal at this stage and along with mining, we should be contributing to the longer term stability of our economy. At least we can feed ourselves, and exports should be a contributor to our national income.

By and large the prices we achieve for our main food-based products like meat and grains should continue to be determined by global supply and demand factors and driven more by global seasonal conditions (supply factors) than by disruptions to consumption (demand factors).

At the margins there will be some fallout though. There have been global trends in consumption of some products. For example, biofuel consumption has been impacted in the same way as crude oil demand. A drop in economic activity and reduced travel globally is reducing demand for energy.

MARKET UPDATE: The weekly movements in wheat prices. Source: Malcolm Bartholomaeus.

MARKET UPDATE: The weekly movements in wheat prices. Source: Malcolm Bartholomaeus.

For Australia that might flow into prices for canola, and possibly for wheat and barley as grain usage in overseas markets adjusts to lower biofuel demand.

However, that is at the margins, and will not be the dominating factor for agricultural products that supply the human food chain.

There are also moves at the margin as food consumption patterns change away from restaurants and back to the family home. We have seen that have an impact on demand for vegetable oils (down as the restaurant demand declines). We have also seen a disruption to supply chains for staples like flour even, as the market adjusts from supplying large package products to restaurants to smaller packaging for home use.

There is also the impact of sharp changes in consumer buying patterns. While it has evened out now, the empty supermarket shelf phenomenon was global as households stocked up to face lockdowns and limited community movements.

All of that aside, the world needs to eat, and Australian agriculture not only achieves that for ourselves, but via our exports, will be needed as much as ever globally.

That export link will see agriculture contribute to the stability of our economy in global terms, as well as our recovery while we wait for the tourism and education sectors to kick-start again. Agriculture may even play a more stabilising and pivotal role than the mining industry if demand in the latter sector is hit by the global economic downturn.

While the COVID-19 pandemic may not be a windfall for agriculture, and we will still be subject to the vagaries of global supply and demand factors (driven largely by seasonal conditions and production levels), we are insulated from its impact compared to many other parts of our economy.

It is a good time to be in agriculture.

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