What an amazing week. The powers that be will be trying their best to “flatten the curve” of those being infected with COVID19 so as not to collapse our healthcare system. The human and political reaction is nothing like any of us have ever seen or experienced.
Australia has 1,485 public ICU beds, and 538 private ICU beds, so big efforts are being made to manage the expected load on these. China were able to build new hospitals and mobilise their big military, but we aren’t that efficient or nimble.
As a result, we’re staring down the barrel of the biggest disruption to the global supply chain since WWII.
Peak internet traffic is up 30% from this time last week, to unprecedented levels. If the trend continues, we might see slowing internet speeds (which is the supply chain for many businesses).
Despite Fridays positive move on Wall Street and the All Ords, I still don’t think we are even close to a bottom in financial markets.
What most (including me) saw as mostly an Asian supply chain hiccup, has turned into a plummeting consumer demand story as well. China manufactures 1 third of the world’s goods, but it’s now gone well beyond a ‘China’ supply problem.
New travel bans, mass cancelations of sports, music, and other events, and a clampdown on large gatherings across the world is seeing a plunge in demand for travel, tourism, and hospitality, the impacts on these industries will far exceed September 11, or anything else in recent memory.
The US Federal Reserve are meeting tomorrow and Wednesday. A fortnight ago they announced an emergency 50 basis point rate cut, and it’s expected they will cut again on the 18th.
Money markets are now pricing in a 1 in 3 chance that US interest rates will be 0% by the end of the year.
The Aussie is all but factored in a 0.25% rate cut next month already too.
Jobless data from the US last Thursday shows the biggest weekly jump in unemployment benefits ever.
Whatever the next 6, 12, or 18 months looks like, the way business and governments operate will change forever.
It’s now clear that the economic danger of the consumer issues is exponentially greater than the health risks. More people will go bankrupt or jobless in the coming months than will die. It will economically cripple millions around the world.
But every analysis I run I come back to the same conclusion, that modern Ag will perform well out of this.
Although this is very different, every recession or downturn since the Great Depression has been positive for farmers of food and feed. Wool might be a different story.
Canola and vegetable oils is a new one, as a large proportion of it is used as fuel, which we weren’t seeing in 2008 or earlier to the same extent.
I have sold new season CAN canola in the last 10 days, particularly after crude prices fell so aggressively.
But we’re seeing canola prices strengthen in Canada and Australia, despite crude’s run.
I’ve been watching the crude oil story eagerly. There are models predicting this will cripple the US crude oil industry, which has been struggling for some time.
Trump announced a stimulus package over the weekend to try and save it, which Wall Street responded positively too. But I suspect it’s too little too late, much like the Australian Governments package last week trying to save consumer spending.
As of the 1st of April, Russia will be operating without quotas or reductions, which have been in place since June 2018. If Russia ‘turn the tap on’ on production, they could crush the US industry.
It’s a crazy place at present. Broadly speaking I’m sitting tight on new crop sales. The exception being CAN and oats if profit expectations stack up.
Old crop feed grain is becoming the new ‘toilet paper’ and has rallied $30/t in the last few days. I think traders are viewing it as a good hedge amongst all this. Converting AUD (falling in value) into a rare feed source has suddenly become the best thing to do.
The challenges facing Ag are much different to what they were last year. If someone is in the game of animal activism to try and rid the world of animal agriculture, they are going to have some tough competition for media headlines and attention this year.
Consumers are concerned with stocking up on toilet paper, vinegar and sanitiser, but this will continue to expand across all food. Having an extra lamb chop in your freezer is probably more useful than a roll of TP.
One thing I must say is that as of right now, broadacre farming in the Great Southern and Lakes Districts has never been so good (which I also said last year at our Future Grains Seminar, and it’s only improved since). We’ve got access to amazing technology, cheap capital, efficient labour, and inputs. Take any one of those out of the equation and we’ll have to adapt.
Keep your head screwed on straight, don’t make emotionally charged decisions, keep your powder dry, and you’ll come out of this in an even better position. Structured decision-making framework is worth it’s weight in gold at a time like this.
Consumers, by enlarge, are paralysed with fear. As a business leader, that’s the worst thing you can do.
We’re doubling down in this business, with Claire Servaas starting work here next Monday to help grow our service quality and operating capacity. I’m really excited about this, as I keep seeing more and more opportunities in the industry. By harvest we will be a 3-person team to help you manage revenue risk, decisions, and associated administration.
Spend a little bit of time this week strategically assessing your business and team, and make sure you’re on track to achieving operational targets leading into seeding. At the core of our business strategy is service to the grower. Please let me know if there is anything I can do to help.