AFEX: COVID-19 could present shocks to production & consumption

The global commodities market has seen significant disruptions in the wake of the COVID-19 pandemic, with impacts felt across the production and consumption spectrum. According to Ayodeji Balogun, CEO of AFEX Commodities Exchange, the outlook of the impact of the COVID-19 outbreak on commodities markets is two-faced, with the possibility of simultaneous shocks to production and consumption. This caution comes as Nigeria's Agriculture ministry is working to provide special passes to farmers to facilitate the free movement of foodstuff during the lockdown. Balogun highlighted the challenges faced by the logistics sector, which has hindered the smooth flow of commodities from producer locations to consumer markets, leading to declining prices at producer levels and increasing prices at consumer markets. One of the key points raised by Balogun is the significant decline in prices of staple commodities in Nigeria. He mentioned that commodities like soybeans and sorghum have seen a 30% decline in prices from January to date, with a 50% decline in rice prices over the same period. On the other hand, export commodities like cocoa have only experienced a 10% decline, while ginger has seen a price appreciation due to increased demand and supply constraints from China, the largest supplier of ginger globally. Looking ahead, AFEX Commodities Exchange's research indicates that the medium-term outlook for the impact of COVID-19 on the commodity market is worrisome. Balogun shared that processors have been bearish in their purchasing activities, leading to low stock levels for major crops in Nigeria. He expects prices to continue increasing in consumer markets until the lockdown is lifted, while prices in export markets are projected to decline by around 10% until late April or early May, followed by a rebound towards the end of May. Furthermore, the medium-term risks surrounding food security are a cause for concern. Balogun highlighted the challenges farmers face in accessing their farms due to lockdown restrictions and inefficient supply chains for agricultural inputs. This, in turn, is expected to result in a decline of 15-25% in cultivation and yields, leading to potential supply deficits of up to 25% in volume by Q4-Q1 next year. In conclusion, the COVID-19 outbreak has presented unprecedented challenges to the commodities market, with disruptions in production, logistics, and consumption. As the world navigates through these uncertain times, stakeholders in the agricultural sector will need to adapt to the changing landscape to ensure food security and stability in commodity prices.