Orn event unthinkable, as would Nassim Taleb in his famous book "The Black Swan"... "the impact of the highly improbable". Due to the coronavirus and the fall in the price of oil, we find a scenario bassist for the international trade.
Historically, we observed a high correlation between the value of the milk powder -our main dairy exported - with respect to the price of oil. This relationship was rooted in that half of the destinations of dairy products exported were oil-rich countries. But from the year 2009, there occurs a phenomenon that began to attenuate the correlation and was the start of the substantially increased imports of dairy products from China. These purchases were increasing year after year to convert to the asian giant in the main importer of dairy on the planet. The impact of this event was that the high correlation between prices of LPE (Global Dairy FAS Oceania) and oil (Brent FOB Europe) existing in the period prior to the year 2009 (r2= 0.70) to fall back r2= 0,51. See charts:
But currently, and despite the lower correlation between the value of the oil and the milk powder, the recently classified pandemic the coronavirus has substantially reduced the economic activity of the asian giant (the demand for food and oil) combined with the internal one between Saudi Arabia, Russia and OPEC, bringing down the price of a barrel of Brent.. we are faced with a compendium of factors bearish concern.
Will have to wait a bit to see the scope and the potential duration of these factors to create a perspective sure how it will affect the global economy and the dairy industry in particular in the coming months...Fortunately the milk production 2019 for the 5 major exporters in the world (European Union, united States, New Zealand, Argentina and Australia) was just 0.07% higher than in 2018.
