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Guy Trafford assesses the impact disruptions in our ag trade with China are having locally, and how long the turmoil might last

Rural News
Guy Trafford assesses the impact disruptions in our ag trade with China are having locally, and how long the turmoil might last

For the average New Zealander the impact of the Novel Cronavirus is something that is happening overseas, mostly in China, and so long as it stays there we assume we will be relatively immune from its impacts. On one level this is correct, hopefully our border controls are sound and if it does somehow manage to breach them, then our health systems are more than able to cope. After all, while a ‘nuisance’ the virus to date has proved no more fatal than the average annual influenza.

However, for those involved with food exports and tourism then the impacts are starting to bite.

For the food exporters the virus impacts come at time when the Chinese market (in particular) is already under some pressure. Prior to the outbreak, China was already finding the prices having to be paid for red meat was getting too high. Driven up by the lack of pork availability, prices hit a point where some Chinese customers took a break from imports to let the market cool.

Taylor Preston expected this cooling down period to finish after Chinese New Year was over (24th -30th January) when buying would resume again, presumably at a slightly more subdued level. This explains some of the price declines seen in recent weeks. In the meantime the coronavirus has struck and severely confused the situation. Chinese New Year has been extended an additional 8 days to February 8th, but perhaps more critically due to restrictions on travel within China, containers of products cannot get off the wharves. And any on-shore processing is not being carried out due to having no workers in factories and of course restaurants and the like are shut up partly as there are no customers, as well as no staff. Taylor Preston, who provided much of these market insights, have said they will continue to process but with a focus on stock that are able to be supplied into non-China markets - that is, lamb, cow and bulls.

Mutton has taken the biggest hit falling -50 cents/kg. I cannot recall a cut in the schedule of that magnitude before and all other meat grades have also experienced lesser reductions due to the major price supporter (China) being out of the market. Taylor Preston expect the China market to reopen and recover, the question is when and all this happening when most parts of the country are suffering under the adverse weather conditions. As a result expect to see our meat schedules continue to drop over the next few weeks and perhaps beyond. So it really is "good-bye to the summer wine".

The meat industry is not the only one impacted. The crayfish industry sends almost all its exported product into China and that trade has also come to a screeching halt. Exporters are having urgent conversations with MPI to get the necessary paperwork through to get access to other markets, and in the meantime the clock keeps ticking.

Ditto the log trade.

Dairy products are not immune from the influence; again China is our single largest market (as it is for red meat). Fortunately dairy products are not so vulnerable as they can be stored when processed into powder and added value. But the old adage, China sneezes and we all catch a cold, takes on added meaning. And while the recent ANZ weekly focus takes a reasonably circumspect view of the impacts, in my view the repercussions may continue longer and hit deeper for some sectors than we will be remotely comfortable with. What we can see is that the situation is fast moving in the wrong direction. Five days ago ASB senior economist Nathan Penny said he thought “meat and dairy would hold up well”, but already that is being shown to be wrong.

The SARs virus took about 7-8 months the run its course so if the influence of Corona virus takes as long there well need to be some rapid realigning of markets we send product to and no doubt these will be at discounted prices.

A major change since SARs is the influence of social media and the average person is struggling to separate fact from fiction and so the ‘bad’ news spreads infinitely faster than good and the bad is often incorrect. This is going to make turning around the current situation, which could almost be described as hysteria, more difficult.

A recent occurrence which has me scratching my head and perhaps reflecting the influence of social media is the Auckland Chinese community decision to cancel this year’s Lantern Festival as a mark of sympathy for ongoing situation in China. At his stage, if we believe the Chinese government figures, it is still less fatal than an average year’s influenza outbreak, so this seems somewhat over-the-top as a response. Or does social media have it right and the true number of fatalities is far greater than what is being reported?

If social media is only half-way correct then the market issues will continue or even worsen. Only the passage of time will confirm but in the meantime the festival cancellation will add confirmation to peoples worse fears and as I heard some-one say “the only thing more contagious than the virus is the fear surrounding it”.

Today's GDT results have brought overall drop of -4.7%, a direct influence the influence of Chinese virus. The results were (surprisingly) mitigated by rises for butter (+0.2%) and cheese (+6.0%). The powders, which are normally supported by China, were down -4.2% for SMP and -6.2% for WMP. Volumes were also down -13%.

Dairy prices

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13 Comments

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The Diamond Princess cruise ships' newly minted 10 patients suggests Chris Martinson is on the button. You dont get that up front and personal on a cruise ship like everyone loves to say. And the washy washy girls are constantly disinfecting everybodies hands. So this thing must be quite virulent. Unless of course they embarked already carrying it.
Again with Chris, the govt is scared. Pump and pray.

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Out of interest Guy, what do you mean by social media? Most of the credible data I have seen is not on msm, but is available online - John Hopkins University for example and some excellent stuff by Chris Martenson on Peak Properity, and Erik Townsend on macro voices. The reason why msm continues to ignore much of the good science and play this down is for reasons only they can know. Social media spreads both fact and fiction but as a start point it leaves msm for dead.

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What are our alternative markets Guy. I hope dairy are investigating these options rigorously like the crayfish industry. I would think a loud bang on the door of 10 Dowling Street would be a good start

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Our crayfish stocks are getting pillaged and the domestic price is horrendous. Maybe kiwis will get a shot of enjoying some crayfish at a slightly lower price, for a change.
'Oh gee, not crayfish AGAIN'

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Down to $30 a cray in Dunedin.

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If the virus gets worse feeze dry the meat, so it doesn't need to be frozen. Smaller cheaper to be transported and prepper friendly.

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As I have been saying for quite a while now. We are very foolish to be so dependent on any single market, especially a totaliterian state like Chna. We could loose it in a trice. And then where would we be. Boards of Directors and CEOs need analyze their exposure to buisness with China and how they would survive if they suddenly lost it. This is an opportunity to put a lot of effort into developing a wide portfolio of alternative markets and products, and keep up the effort after this crisis passes.

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And I argued Chris we take the money n run. Wow have things about turned in the short time since we argued the point. Still pretty pleased I have Chinas money in the bank. But I have eggs in other baskets. An update from my lamb processing facility assured they had plenty of other markets keen for product. But I foresee some real pain from this. Will companies be paid for product sitting on a wharf somewhere? This could send companies to the wall.
Meat destined for export is being sent local. Mince that was $21/kg last week. $11 today. Eek. I supply local trade.

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Guy you seem rather optimistic concerning this illness. I on the other hand am not.
Just a few things. The 10 positives on the cruise ship shocked me. The level of washy washy on these behemoths is over the top. They are totally paranoid about the norovirus. They are spotlessly clean.
What on earth makes you think its gonna stay in China. Its already in 25 other countries!
If or should I say when it is found here, our hospitals are struggling now, so why do you think an added few thousand folk needing high maintenance under infection control care will be no sweat for little old nz?
Your positivity is lovely. I believe misplaced.

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Double up

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Not a whole hell of a lot of use worrying about this, you can't change it. A Japanese Cruise ship now has 10 confirmed Coronavirus cases, goodness only knows where they have spread the bug before being identified. This is going to take up more space yet, all around the world and everyone will be making all sorts of efforts to keep it out, as there are still many unknowns about it.
Hunker down seems to be the best advice I can think of

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Given foreigners own so much of our means of production why should we even be concerned, it almost has nothing to do with us.

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