The current strict lockdowns in many major cities across China – as the country tries to stamp out the spread of COVID – not only affects its local citizens, but also has impacts on trading partners, including Australia, according to the Rabobank agro-food bank specialist.
Speaking in a recently recorded podcast, What is the impact of China’s lockdown wave?, RaboResearch’s managing director for Australia and New Zealand, Stefan Vogel, said, in particular, that there are four specific impacts of lockdowns that are expected to have growing ramifications for Australian agribusiness. – disruptions in freight logistics, Chinese corn plantings, demand for dairy products and pork prices.
“The already stressed global container logistics situation is being complicated by massive delays around the Port of Shanghai,” Vogel said.
“The Dry Container Index, which tracks the average prices paid for transporting dry bulk materials on more than 20 international routes, has increased fivefold through 2021 due to COVID lockdowns in different parts of the world. Although the index has since declined and is down 16% since early March and 25% from September 2021 highs, it seems likely that the ongoing COVID lockdowns in China will compound ongoing container logistics issues and will keep container freight well above historical levels. levels for 2022 and are also expected to remain elevated through 2023.”
Mr Vogel said disruptions to maize plantings in China – the world’s second-largest maize producer and also the world’s largest maize importer – were also raising further concerns in an already extremely tight global grain market.
“Chinese maize planting is facing delays in two key provinces as some farmers are stuck in major cities and cannot access their fields due to COVID lockdowns,” he said.
“We understand that the closures have caused delays in planting this important fodder crop in parts of Jilin and Liaoning provinces, and these two provinces together account for 20% of the corn acreage in China.
“The delay in planting increases the risk of frost damage later in the season, but at this stage it is too early to tell what the impact on yields will be. This will depend on the weather throughout the season.
Mr Vogel, however, acknowledged that delays in Chinese corn plantings – and China’s feed grain import needs more generally – were not the main driver of current world grain prices.
Instead, the Chicago Board of Trade’s (CBOT) world corn prices hit a 10-year high in April this year and remained above $8/bushel, mainly on concerns over the arrival early dry season in Brazil and below normal rainfall. forecast for the next three months, which could reduce Brazilian corn yields.
In addition, cool and wet conditions for corn planting in the United States and an expected reduction of more than 50% in Ukrainian corn production (as well as the uncertainty of exports from Ukraine) in 2022 have also exerted upward pressure on world grain prices, he said. .
The spread of the Omicron variant and China’s “dynamic zero-Covid” policy have also brought strong consumer headwinds to the country’s restaurant industry, Vogel said. And that translated into a drop in demand for dairy products.
“Demand for dairy products in food service is slowing in China while, according to our calculations, dairy products in China produced from whole milk powder imported from Oceania are more expensive than those from locally produced dairy products for the first times in eight years,” he said.
“After a record 2021 year of milk powder imports by China, demand uncertainty due to COVID restrictions is likely to curb the ‘dragon’ import appetite going forward.”
Mr Vogel said record dairy prices in Oceania could also make it more difficult for Australian (and New Zealand) exports to China to be competitive.
Collapse in pork prices
In addition, China’s COVID restrictions have led to a sharp decline in sales of meat products in foodservice, as well as supply chain disruptions, which have impacted pork production and prices, said Mr. Vogel.
“Chinese pork producers have liquidated herds to avoid further losses, putting further downward pressure on Chinese pork prices, which may also impact China’s feed grain import needs” , did he declare.
RaboResearch Podcast What is the impact of the lockdown wave in China? is available here.
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