There are no answers, do you have any questions? Coronavirus is bearish for dairy prices, but we don’t know how bearish yet. There are a few different ways that I have tried to look at the situation and estimate what kind of impact COVID-19 will have on dairy prices in 2020. The first way is simply looking at the estimated impact that the virus is expected to have on global economic growth and then feed the lower GDP forecasts through the model and look at the impact on prices. The OECD released updated economic forecasts. In their best-case scenario, COVID-19 is going to knock 0.5% off global GDP in 2020, which is consistent with the impact we’ve seen from other global viral outbreaks (after adjusting for the widespread nature of the COVID-19 outbreak). Under a worst-case scenario, global economic growth ends up being 1.5% lower than it would have been without the virus. While I can think of scenarios that would knock more than 1.5% off global GDP, let’s use a reduction of 0.5 to 1.5% as a reasonable range. If I feed the lower GDP numbers through the models it would knock about 3% to 18% off dairy prices during 2020.
Focus on China
So, we can come up with an estimated impact of somewhere between 3 and 30%. Given the price declines that we’ve seen so far, I think the likely impact is going to be in the 5 to 15% range. Now that is a 5-15% decline in average New Zealand prices for the calendar year. The initial drop in prices will likely be twice as big as the average decline, so we could be looking at a 10-30% drop in dairy prices short-term before the virus is contained, consumers return to normal patterns, and global economic activity improves.
What About US Prices?
Nate Donnay is the Director of Dairy Market Insight at INTL FCStone Financial Inc. – FCM Division and has been applying his interest in large complicated systems and statistical analysis to the international and U.S. dairy markets since 2005. As a consultant, he has worked with clients at all levels of the dairy marketing chain from the farm level up to processors and packaged foods companies, food distributors and restaurants as well as connected industries like banks, private equity groups, government agencies, and industry associations. Through ongoing reports or one-off client specific projects, he helps them understand the short and long-term trends and the underlying relationships driving the market and what that means to their businesses.