Few sectors of the economy have been spared from the havoc wreaked around the globe by the COVID-19 pandemic, and U.S. agriculture is no different.
The situation has hit all commodities, with prices for some plummeting since January. And that’s on the back of five years of depressed prices and farmer income.
“It’s not a pretty picture for anyone in agriculture right now,” said Brent Gloy, agricultural economist and cofounder of Agricultural Economic Insights.
Overall demand has shrunk, and the shift from foodservice to retail has caused problems in the supply chain, including processing capacity. Perishable products —such as fruits, vegetable, livestock and milk — are particularly problematic, he said.
“Everything is messed up, and of course those things have a shelf life. Everything is basically backing up,” he said.
By mid April pork prices had gone down 45% since January, and fed cattle prices had fallen 28%.
Class III milk prices had fallen 26% and have continued to decline. The June futures price for Class III fell from $17.73 per hundredweight on Jan. 21 to $11.16 on April 21, a 37% drop.
“It’s a big, big problem, and it just doesn’t look like it’s going to get better anytime soon,” he said.
Milk is experiencing a massive supply-chain problem — with a system not set up to take this much demand shock — and meat processors can’t keep plants running, he said.
The damage is not limited to perishable products. Cotton prices are down 24%, corn prices have dropped 13% and soybean prices are down 9% since January.
Corn and soybean producers were already expected to have economic losses of $100 an acre. The coronavirus-related price declines would shave another $98 and $58 per acre, respectively, from crop budget estimates. And with nobody driving, the corn ethanol industry is imploding, he said.
“It’s a bad, bad situation,” he said.
There are going to be surpluses, big piles at the end of the year that have to be dealt with, he said.
“When you keep expanding supply in the face of shrinking demand, what you get is low prices,” he said.
Mother Nature could implement supply control. But absent that, farmers are heading toward really low prices, he said.
Wheat is one commodity that’s mostly escaped the downturn, due to shrinking acreage and concern about production issues in other regions. Supply and demand for wheat doesn’t seem to be completely out of balance, he said.
But it is out of balance for all the other crops and livestock, he said.
“At some point things will get back to normal; the question is when,” he said.
Demand and consumer behavior have to get back to normal before that’ll happen. People have to feel confident about going out without getting sick, he said.
“That’s going to take awhile,” he said.
Even if the lockdown is lifted, people aren’t going to go out and hop on a subway. There’s no telling how long it will be before people feel comfortable getting on an airplane or going to a restaurant or when they’ll start driving again, he said.