How is the coronavirus outbreak affecting the operations of agribusinesses?
The ongoing results season offers investors a chance to quiz executives about companies’ exposure to the disease and its knock-on effects.
Below, answers from the likes of Archer Daniels Midland, Bunge and Deere & Co covering topics such as factory working, phosphate shortages, logistical hiccups and which commodities look exposed to a continued virus outbreak.
Deere & Co – February 21
Josh Jepsen, director of investor relations
When we think about kind of the impacts and potential impacts of the coronavirus, there’s kind of two components that we’ve mentioned.
One is direct exposure, our sales into the China market. That’s relatively small for our ag and turf business and for our traditional construction and forestry business.
Roadbuilding, though, has a bigger exposure there. So roadbuilding in China will tend to be 10% to 15% of their overall sales… We did see some reduction in their top line as a result of the lack of activity in that market over the last month or so.
The second component is on supply chain. And we’ve got suppliers in China that supply our operations across the globe...
We’re working through our supply management teams, working really diligently to understand where each of those are and… are they producing or when are they going to begin to produce.
Ryan Campbell, chief financial officer
One of the things that we’ve thought about is the impact on our supply base there and the ability to get parts to our operations internationally. So we’ve actually, in our second quarter, included about $40m of cost of expedited freight to make sure that we’re able to have that availability to get parts into the operations.
So that will… result in probably a lighter top line and margin line for the second quarter than what we seasonally would see.
Hormel Foods – February 20
James Snee, chairman and chief executive
Our team members across all functions of our business in China, from sales and marketing to plant professionals, observed the extended lunar new year holiday and started to return to work as of February 10. However, we still have a majority of our employees who have not returned to work due to self-quarantine and transportation restrictions.
Similar to other companies in China, all aspects of our in-country supply chain are operating more slowly and at higher costs than normal.
From a sales perspective, the demand for our foodservice products, which represent the majority of our sales in China, has dropped off considerably as patrons are not eating out.
On the other hand, we have seen a large uptick in retail sales of shelf-stable products like Spam and Skippy as consumers dine at home. We do expect a very difficult second quarter for [Hormel’s] international [division] primarily due to the impact of the coronavirus.
James Sheehan, chief financial officer
Recently, we have seen downward pressure on [US] hog and pork prices. Since the start of our second quarter, market hogs in the USDA composite value have declined by more than 10%. Bellies and pork trim have been lowered by as much as 30%. The outbreak of the coronavirus in China may be a contributing factor.
You’ve got the impact of the coronavirus in China and the impact that’s having on export markets in terms of reports of exports backing up and the idea of what happens to the hog supply here [in the US] in the short term.
Mosaic – February 20
James O’Rourke, chief executive
[A] sentiment shift, producer curtailments and a late fall surge of applications has driven phosphate prices higher.
Today, we are seeing a more than $65-per-tonne improvement from the lowest prices traded we made in December.
Add to that, the extended production downtime in China due to the coronavirus, and we see a much more constructive global supply and demand picture for the global phosphate market.
The potash market is waiting for a China contract to form a new price benchmark and the country’s necessary response to the coronavirus outbreak has made the timing of that settlement more uncertain.
Rick McLellan, senior vice-president of commercial
We know there will be impact in China’s supply and demand for both phosphates and potash. Approximately 30% of Chinese phosphate rock, 30% of China’s DAP [diammonium phosphate] and 45% of China’s MAP [monoammonium phosphate] are produced in Hubei province, which is the epicentre of this outbreak and has been subject to the most restricted rules enacted to reduce the spread of the virus.
In Hubei, phosphate production facilities have been on extended shutdowns, and we understand the second round of shutdowns has been enacted from February 16 through the 29th. We believe the earliest these plants could reopen would be sometime in the first week of March.
Plants that had already resumed operations outside of Hubei province are now running short of raw materials, causing some of them to reduce production. We believe the overall phosphate production shortfall will ultimately be 2m tonnes in the first half of 2020.
Based upon surveys our China team conducted, half of the NPK and blend plant operators surveyed stated they have about two weeks of raw material on hand once they return to operations. This is a very low level.
For potash, transportation issues have hampered movement of product away from the ports and will impact ongoing contract discussions. However, spring is near, and the government is working proactively to ensure the return of logistics support for agricultural products.
When workers are able to safely return to duty in the plants and in transportation, the resumption of normal operations is expected to be slow. But once trucks return to the road, we expect potash will move from the port to the blenders and on to farmers, creating a need for additional potash imports during the second quarter.
Nutrien – February 19
Charles Magro, chief executive
Short-term [potash] shipments to China remain uncertain as they draw down port inventory, and the coronavirus has limited product movement.
We now expect China will not conclude a new [import] contract until sometime in the second quarter due to elevated port inventories and the impact that the coronavirus is having on product movement in the country. As a result, we have lowered our 2020 Chinese fertilizer shipment estimate by 1m tonnes from earlier estimates.
CF Industries – February 13
Bert Frost, senior vice-president of sales
So our take on the virus today -- its impact is on logistics and production. Will the mines open their short coal today? And inventory levels from our reports are at low levels.
And so the potential as you unravel this thing, where does urea shipments-to-exports rank in the pantheon of needs is probably not very high.
I think it’s going to be not much urea comes out of the Hubei province, it’s more phosphate.
But overall, we’re predicting fewer exports out of China anyway, and this will just further exacerbate that situation. And that’s why we’re more comfortable and confident with the tightening of the market.
if urea production is [impossible]… at the rate that they need and then move that into the market as they’re entering their spring peak demand, which is about now, that would be a yield impact of corn wheat and vegetables and fruits.
Therefore, the need would be to augment or replace that… carbohydrate value and protein value with imports.
Anthony Will, chief executive
If anything, this is going to be a negative impact on supply coming out of China as opposed to negatively impacting demand. Because on the demand side, people are still going to eat.
So… whether it’s coal mines or urea plants, those are the places where I think you’re going to see a reduction in labour hours.
Relative to urea supply, it probably will tighten it up.
Bunge – February 12
Greg Heckman, chief executive
It’s too early to tell what, if any, impact the coronavirus situation will have on our markets
You wouldn’t want to see coronavirus continue to grow, which would be tough on oil and meal demand.
Ingredion – February 11
James Zallie, chief executive
We have two manufacturing facilities in China. Both of those facilities are, respectively, about 850 kilometres from Wuhan in different provinces.
The impact so far that we have seen is, like most companies, a delay mandated by the government for employees that went away for Chinese new year to return back. And then in some cases, some mixed signals around quarantine time periods.
That being said, one of our factories has been operating uninterrupted. The other factory has been operating of line only with an abbreviated staff, and it has been delayed in its production by approximately two weeks. All of our employees are safe.
There clearly will be a slowdown in demand from our customers as well as their operations are equally impacted. That’s something that we anticipate, but yet, at this point, cannot quantify.
China is about 2% to 2.5% of our overall sales as a company.
Agco - February 6
Andrew Beck, chief financial officer
Coronavirus is something that we’re monitoring very closely.
It’s important to understand that we have our own factories in China, and those factories supply not only the local market, but are heavily focused on supplying the Global Series tractor, which is our small tractor, into a number of our regions around the world.
We also make components in those factories that go into assembled equipment in mainly in Brazil and in Europe. So… we’re monitoring very closely because of the fact that there could be some disruptions to getting parts to our other factories and getting products to our customers in time.
Right now, the production levels are secured at least through probably mid-March and then we’ll start to see if there’s going to be any disruptions. It’s something that we’re hopeful because of the levels of inventory that we’re carrying… that there won’t be a disruption.
FMC – February 6
Pierre Brondeau, chairman and chief executive
The thing we are watching, of course, is the impact of coronavirus.
There is no impact of coronavirus on demand today, as we see it. It is much more an impact on logistics because of parts of the country which are being isolated or roads which are being blocked or air freight.
Today, we have not seen any negative impact on our ability to operate so far. We had some issues where we had to find options to get raw materials from a different location. But all in all, the issues we have been facing, we have been able to resolve them and operate normally.
Tate & Lyle - February 6
Nick Hampton, chief executive
China… is a market with huge future potential for us and we’re monitoring things closely. And the most important thing at the moment is the safety of our team in China and making sure that we can serve our customers as everything starts up after Chinese new year.
In terms of materiality for the group, it doesn’t change our view on the full year. It’s a market with huge future potential. But… the majority of our business is still in developed markets.
Tyson Foods – February 6
Noel White, chief executive
We’re closely monitoring news of the coronavirus.
We’re actively assessing what this outbreak may mean for us for our global business and preparing for the possibility of any impact.
In China, we’ve been working with the government and have successfully restarted some of our operations [from the lunar holiday break]. The financial impact is unknown at this time.
Demand [in US pork exports] continues to be -- or interest, at least, continues to be strong. There is certainly the need and coronavirus has just clouded that a bit, frankly.
There have been disruptions. There’s been disruptions in domestic production. There’s been disruption at the ports.
[Coronavirus is] going to accelerate the efforts that the Chinese have had to decrease the number of wet markets.
I think that we’ll continue to see modern grocery continue to grow in China. So it’s an acceleration. I think both African swine fever and coronavirus will contribute to that.
Archer Daniels Midland – January 30
Juan Ricardo Luciano, chairman and chief executive
The impact to us in ADM is very difficult to assess. We have about 1,100 employees in China, but our direct profits in China are small.
Of course, our exposure is through Wilmar. Wilmar have two locations in Wuhan. And of course, they are currently shut down because of Chinese new year.
We know that no employees from Wilmar have been infected. And of course, since Wilmar was going to shut down for lunar new year, they had inventory of products. So for normal demand… they will be able to supply.
Of course, probably people going out, that type of entertainment and dining, will be reduced. So some of the bulk products, maybe bulk consumer products, could be impacted in demand.
But people will have to eat [at home] anyway. So in that sense, more the packaged goods will probably pick up a little bit.
So at this point in time, we don’t expect a significant impact in our business.
How could that impact ADM in general? We are in a very fundamental business, which is the business of food. So I think that we will be impacted to the extent that GDP, the global GDP will be impacted for.