COVID-19’s potential impact on agriculture
Beyond the concern for the general public’s health with the spread of COVID-19, many within the agricultural industry are wondering what impact the virus will have on agriculture and how it will affect producers.
To help address these concerns, a team of professors from the University of Illinois have started a bi-weekly webinar series exploring the potential issues from COVID-19 surrounding agricultural markets, planting decisions and agricultural policy.
Gary Schnitkey — professor University of Illinois said in addition to the concern for personal health, there is also worry for the supply chain and what might be happening in agriculture.
The ethanol industry and agricultural exports could see some modifications in the long term.
“You can expect to see some change in ethanol and export demand,” Schnitkey said. “If we are looking at lower fuel use because of less travel, you would expect ethanol use to change over time and export and demand to change over time as well.”
However, Schnitkey said the first major concern is keeping supply chains functioning and those would primarily be related to meat, dairy, egg and produce.
“Those perishable commodities. We have to keep them moving. Obviously if we are dealing with biological units – hogs, cattle, dairy – they have to be fed. We have to keep feed, veterinary supplies moving to those animals, so anything that is done on a state, local level that impedes that is a good thing,” he said.
A major concern is what will happen and how will we respond with a COVD-19 outbreak amongst employees at processing plants?
“Given we are just looking at the spread of the disease whether than stopping it, it seems extremely likely we will get that virus in some sort of processing plant and how we will deal with that is going to be a concern,” he said. “We will likely be seeing some spikey erratic prices at some supply points as people are making changes.”
Schnitkey said there is another concern for keeping the supply chain moving and that is with the upcoming planting season.
“It would appear all of our fertilizer, seed, and chemicals appear to be in place,” he said. “But, we have to maintain the transportation as we move into the spring planting season.”
However, there could be some challenges to face if a COVID-19 infection hits the farm.
“I would say, maintaining a workforce that is free from COVID-19 is a concern. Washing hands, social distancing and restricting travel are good measures for everyone to be adopting right now,” he said. “We just sent a bunch of students away from universities. Be careful as those come back to the farm.”
Will there be any potential shift in acres from corn to soybeans due to COVID-19?
“At this point, we have been doing some analysis of what recent prices shifts suggest for corn and soybean profitability, in Illinois at least, it may favor soybeans, a little bit, but it’s still too early to say what those things look like,” he said.
Jonathan Coppess, clinical assistant Professor, University of Illinois discussed his opinions on what we can expect from the government in terms of funding – or the potential lack thereof as well, as ways we can be ensured the agricultural supply chain can keep moving.
“We’re still functioning even with some localized challenges,” he said.
Coppess said under the Defense Production Act of 1950 that was put into place during the Korean War, the USDA has a lead role in food resource obligations.
“The Farm Service Agency is also a logistics and purchasing arm for USDA and one of the things we will be watching, and we presume USDA is working through very closely, is how to use that authority to make sure priorities and allocations are underway,” he said. “If there are localized food shortages or supply chain challenges, FSA can purchase, prioritize supplies to certain regions. That is everything from food products all the way up to farm equipment and farm input supplies – even on the input side, for planting season, we can see potential for this used to help prioritize and allocate if we do have some localized challenges or issues.”
Can producers expect another Market Facilitation Payment (MFP)?
“From my perspective, it is way too early to talk about another MFP type or other direct assistance, given we have such fast uncertainties around the economy, around this pandemic issue in response – especially around planting, with weather and planting issues,” he said. “That level of uncertainty councils against having USDA rush into another payment system or another payment program. We’re looking at this as kind of an emergency crisis situation. We need to prioritize our response, our efforts, staff and capabilities. The USDA, first and foremost with perishable commodities — livestock, eggs, dairy — making sure that we can keep supplies moving and responding to those localized challenges if, and when, they show up.”
Producers, Coppess said should have some sense of protection knowing they are signed up with either ARC or PLC crop insurance.
“We are aware just how much of a safety net is out there, so let’s prioritize where we need to be, making sure we have food moving and a system running,” he said.
General crop and market outlook
Todd Hubbs, clinical assistant professor for the University of Illinois, agreed with his counterparts that for now, it is essential to keep the supply chains in place.
Hubbs however looked beyond the United States and focused on the export market.
“I’m looking at our competitors in South America, China and places in the EU,” he said. “If we can see their supply chains start to breakdown, particularly South America, that may be supportive to us as we move into summer and it really is uncertain right now.”
Although Hubbs said it appears China and many of the other Asian countries are starting to emerge from the COVID-19 pandemic, and some buying of commodities may be starting back up, will China be able to meet their phase one trade obligations?
“Based on the start of the year, it doesn’t look like it,” he said. “They got off to a slow start because of the repercussions around COVID-19 in their country. They are well behind what they said they were going to buy in 2020. I do still think they’ll try to buy a significant amount of agriculture products from the United States as we move through the rest of 2020.”
Coppess said the economic data coming out of China is showing they are recovering.
“The hit they took to their domestic product looks to be fairly severe, but all signs are showing they are beginning to remerge. That is a positive factor in the grain market you have seen this week in the grain market’s announcement of a couple cargo sales to China,” he said. “I think that has helped to cushion the losses in the grain markets this week.”
Hubbs said the corn basis has weakened dramatically since the spread of COVID-19 began.
“A lot of that is due to the ethanol plants,” he said. “We have heard of ethanol plants idling with the idea of gas consumption falling drastically. On top of that, the Saudi/Russia price war around oil has driven oil prices down to really low levels and gasoline as well.”
Even with a 15% contraction of the ethanol plants, Hubbs said that could relate to 120-150 million bushels of corn.
“It may take a while for the ethanol industry to gear back up,” he said. “If there is a bunch of idling, this could be a little bit worse and I think you will see basis reflect that.”
What about the marketing of any old crop corn?
“I’m sort of in a wait and see mode,” he said. “If we can pull out of this in May or June, we may be able to see prices come back a little bit, but I’m not expecting a miracle.”
For soybeans, Hubbs said we are still seeing a pretty decent crush, barring any interruption in the supply chain that may still continue.
As far as Brazil, Hubbs said they put out a pretty good crop this year.
“But will they be able to move it? I think China will show up this year. I think you are going to see soybeans, possibly if Argentina restricts trade, soybean meal exports get some real strength,” he said. “I don’t want to seem too optimistic, I don’t think it’s all gloom and doom if we can get through this in a timely manner and maybe hold your marketing for a little bit to see how this plays out.”
Not only are we looking for China to start buying more soybeans and potentially corn, Hubbs said, especially as they try to rebuild their hog herd, other countries are showing some buying potential as well.
“I also see places like South Korea – they seem to be actively buying corn recently, I like to see that continue,” he said. “Japan is talking about sending all of their kids back to school. It feels like they’re further along in the curve than we are, and hopefully they can get back to some normal economic activity.”
Regardless of what happens, people need to eat.
“It’s always important to remember the elasticity of demand of food products is relatively low. They’re going to need to eat and if we can keep our supply chains active, I think we can be competitive,” he said.