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Just as the first case of COVID-19 was confirmed in Wuhan, China, on or around Jan. 14, the United States and China signed a long-awaited Phase 1 trade deal. China’s all-encompassing response to the outbreak, including self-distancing and stay-at-home protocols, raised concerns about their ability to meet their commitment to purchase more than $40 billion in U.S. agricultural products across 2020 and 2021.

The possibility of tapping into the agreement’s “act of God” clause also emerged. The clause allows for Phase 1 commitments to be altered if an unforeseeable event outside the control of each party delayed implementation or the timing of purchases, e.g., COVID-19.

For the better half of two months commodity prices were mostly flat to lower as U.S. commodities markets waited for evidence that the Chinese would live up to their Phase 1 commitment. Then, in early March, people in the U.S. began testing positive for COVID-19.

To facilitate self-distancing guidelines recommended by the CDC, by March 16 all but essential services in the U.S. economy were shut down. This included the shuttering of , schools, universities, restaurants, bars and cafeterias resulting in lost purchases of milk, meat, fruits, vegetables and other food, causing a downward spiral in crop and livestock prices.

Commodity futures markets were roiled by the near zeroing out of demand that came with those closures, reduced demand for gasoline and ethanol, and projections for negative economic growth across the entire U.S. economy.

As a result, crop and livestock prices have fallen to levels that threaten the livelihoods of many U.S. farmers and ranchers, according to an updated analysis by the American Farm Bureau.

Futures prices for nearly all the major crops have dropped by double-digit percentages. Pushed down by a 40% plunge in ethanol prices (87 cents per gallon), corn prices have fallen 15% or 61 cents per bushel, to $3.35 per bushel. Prospects for 97 million acres of corn planted in 2020 also weighed heavily on corn prices. 

Soybean prices are down 10%, or nearly $1, to $8.57 per bushel while the price for cotton, which is heavily dependent on foreign manufacturing capacity, sank nearly 30%.

Buoyed by demand in the U.S. and China, wheat prices have declined only 3% or 18 cents per bushel. 

Impact on Livestock Futures Prices

Since the beginning of the year, both beef and pork futures prices have declined more than 30% - lean hogs are at nearly 40%. Live cattle futures prices settled at approximately 85 cents per pound, down 35 cents per pound since mid-January. The lean hog futures price settled at nearly 53 cents per pound, down 34 cents per pound.

Milk futures prices have also fallen sharply. The May futures price for Class III milk has fallen by nearly $5 per hundredweight to approximately $12.50 per hundredweight – a 28% decline. The futures price for Class IV milk (used to produce nonfat dry milk) had a more significant decline, falling by more than $6 per hundredweight, or 34%, to less than $12 per hundredweight.

In response to the demand destruction for dairy associated with restaurant and school closures (albeit not in the beverage milk case) as well as the sharp downturn in prices, many milk cooperatives and processors were dumping distressed loads of milk. 

“It’s worth noting that these prices are in no way tied to what shoppers pay in the grocery store. There are a lot of hands through which these commodities pass from the farm to the fork, so a drop in prices paid to farmers very rarely, if ever, translates into lower consumer prices immediately,” said American Farm Bureau Federation Chief Economist John Newton. 

Newton says the drop in demand is pushing the prices farmers would get paid for their crops to lows that may make it very difficult for them to justify putting another crop in the ground this spring.

"While the whole country is optimistic there is an end in sight, the question of when the economy will be healthy again is fueling further market uncertainty,” he said.

While these commodity futures have declined significantly, one thing is certain, these futures prices are going to change, Newton said. As more information emerges related to the duration of the COVID-19 self-distancing guidelines and a potential recovery is in sight, demand could rise, and increased prices could follow.

“The resilience of farmers and ranchers has been nothing short of stunning, but we must not take for granted their ability to hold on with prices spiraling, taking all hope of breaking even with them,” said AFBF President Zippy Duvall. “I stand by my assurance that our food supply remains strong, but America will have fewer farms and ranches supplying it unless USDA acts quickly to deliver aid and our economy is released from the grips of this pandemic soon.”

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