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BayWa flags risk of ag supply chain hiccups, as protectionism fears grow

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BayWa underlined the threat of logistical hiccups in agriculture markets posed by the coronavirus pandemic, amid growing market concerns of protectionism adding to the supply chain disruptions from Covid-related lockdowns.

 

The German-based energy-to-grain trading group warned that the continued spread of the disease could “have a noticeable negative impact on business development over a sustained period of time”, thanks to the threat posed to deliveries and supplies.

 

The group highlighted “the international network of logistics chains and the resulting limited availability of primary materials and products” that a continued coronavirus spread could cause.

 

“If the spread of the virus cannot be restricted in the first half of 2020, increasing restrictions on supplies are expected in the second half of the year.”

 

‘Uncertainty of exports’

The comments come amid a growing market focus not just on logistical snarl-ups thanks to lockdowns imposed by efforts to counter the spread of coronavirus - but also the growing fears of government-imposed restrictions on trade.

 

UK-based Shore Capital, noting a cocktail of rising demand and “uncertainty of exports flowing freely” said that strong price gains, as witnessed in prices of many ags over the past week, “may suggest countries hold back on exporting.

 

“We note there is more concern with regards to Russia and the Ukraine, as any restrictions imposed to export grains is likely to cause great volatility and cause major disruption to the supply chain for the manufacturing of products.”

 

Russia - which has a history of curtailing ag exports in times of uncertainty to keep domestic prices down – has this week suspended trade in processed grains, and faced heightened speculation of broader measures, notably in oilseeds, with vegetable oil growers urging curbs on sunflower seed shipments.

 

In Ukraine, Taras Vysotskiy, deputy economy minister in charge of agriculture, said on Thursday that "at this moment, no restrictions on food exports are planned”.

 

Also in the former Soviet Union, Kazakhstan on Tuesday suspended exports of food staples such as wheat flour, buckwheat, sugar, sunflower oil, and some vegetables.

 

‘Rising risks of protectionism’

Elsewhere, Vietnam, the world’s third-ranked rice exporter, this week suspended shipments of the grain in a bid to underpin domestic food security.

 

Fitch Solutions noted “rising risks of food protectionism measures” such as trade restrictions and government stockpiling stemming from responses to the Covid-19 outbreak, although viewing that “for now these measures are unlikely to gain momentum as global supply is relatively ample”.

 

The analysis group also highlighted the potential for other setbacks to supply chains, with “elevated risks to farm work disruptions”, adding that “the issue of labour availability is one of the most pressing one at a time when a rising numbers of countries step up lockdown measures”.

 

There are “rising risks” too of “small-scale operational frictions” such as port lockdowns, or strikes by transport workers fearful of contracting the disease through work.

 

‘Soybean oversupply’

BayWa’s comments came as the Germany-based group unveiled an 11.3% rise to E61.1m in group earnings for 2019, on revenues up 2.6% at E17.06bn.

 

The profits growth reflected a 33% rise to E127.4m in operating profits at its energy division - helped by strength in wind and solar sectors, with trade in photovoltaic components soaring by some 70% - which more than offset an easing of 3.5% to E96.6m in agriculture profits.

 

The farm division downturned reflected a trading performance which “fell short of expectations”, undermined in the domestic market by factors including “positive harvest expectations and a good supply situation” which, in causing a prolonged price fall, prompted a “notable reluctance among market participants”.

 

At the international trading operation, Bast, operating profits fell by 39% to E19.1m, undermined by a hit from EU sanctions against Iran, and also by a knock-on effect of the China-US trade war in directing more soybeans to Europe, creating an “oversupply… which led to increased competition”.

 

The division’s trading volumes of grains and oilseed meals fell by 1.6m tonnes to just under 25.0m tonnes, rather than showing a small increase, as had been expected.

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