COVID-19 and the markets
By KRISS NELSON
COVID Recovery Iowa, in collaboration with Iowa State University Extension and Outreach are hosting COVID Ag Updates: Focus on Resilience, a weekly series of webinars featuring updates from agricultural specialists each Monday.
According to ISU Extension, the farming community is used to the stress that comes from the unpredictable and uncontrollable challenges that jeopardize their production and livelihood.
Agricultural resilience is about equipping farmers with strategies and information that will enable them to absorb and recover from these stresses.
Chad Hart, associate professor of economics and ISU Extension crops market specialist kicked off the series with a recap of how the markets have reacted to the COVID-19 pandemic as well as some insight to where he feels things are headed.
According to Hart, there has been a fairly dramatic downturn in the corn prices so far this year.
“It really started at the beginning of the year, even before COVID-19 hit,” he said. “We were seeing the crop market sort of struggling under the combination of pretty good supplies over the last few years and while we’ve got fairly good demand, it has been a little weak here as we entered 2020.”
It was March and April when we really saw the shut downs happening because of the pandemic and even more of a dramatic drawdown in prices.
“Prices bounced back up a little bit in May and June, but we have lost that momentum in the corn market now and we are basically at the lows for the year right now,” he said.
Although we are experiencing some drought conditions, they are not widespread enough to be a concern to the traders in Chicago, Hart said.
“The drought is just adding to the mix of risks that farmers are facing this year,” he said. “Over half the state is now under some form of drought conditions, so while we got this widespread drought, we aren’t seeing the crop prices necessarily rally because of it. Not only do we have financial stress from lower prices, we are having weather stress building in right now and that’s putting a lot of stress on farmers.”
Hart said there has been a small rally in the soybean futures.
“It is the same sort of basic tale on the front end of the year, where we were watching prices drop fairly significantly as we dealt with the virus in the early stages,” he said.
For June, July and here into August, for soybeans, Hart said we have seen some international demand pick up especially from China.
“We got a lot of purchases being made on the international market and that is helping bring soybean futures up a bit, where corn hasn’t been able to find that traction yet,” he said.
Hart said we are seeing the same tale on the livestock side of the market.
“The hog industry, sort of like the corn industry right now is seeing some of the lowest prices we have seen all year,” he said.
Processing plants are beginning to gear back up and there has been a demand for lean hogs rebuilding when those plants reopened.
“This just goes to show how many hogs were on farms when COVID-19 hit,” he said. “And how big the back log of animals still is even today. Even though these plants are running as fast as they can, we’re still trying to catch up for the animals we couldn’t move in the processing back in the depths of the COVID crisis.”
As far as the cattle side of the market, Hart said he has seen some recovery.
“It goes back to the idea when we are looking at cattle, they didn’t get as back logged as much as the hog industry,” said Hart. “They’ve had an easier time catching up on the processing side and that has allowed cattle prices to rally back up. They are still down below where they started at the beginning of the year, but the cattle industry is, right now, in much better shape.”
Dairy is also seeing some recovery with prices going higher than they were at the beginning of the year.
“If you think about part of the reason we saw prices dip in April and May was due to the shut down in restaurants -that created some bottlenecks -especially for products like milk and pork that rely a lot on either schools or restaurants in order to push demand. As soon as we could open back some of those restaurants, especially, we did see some of those products rebound a bit there, but that is sort of the challenge when you look at agriculture we are dealing with right now, in general, lower prices for our products, much more volatile to prices that farmers are dealing with there,” he said.
Our strongest potential for building up some stronger prices this fall, Hart said is linked to the possibility that the drought does limit supplies, but we are also seeing international demand really starting to pick up now.
“When we look at sales for the crop that is still growing in the fields right now, we are seeing an active buying pattern happening, not only in China, but seeing increased sales into Mexico, Japan, South Korea – it looks like the global market structure is looking good for us to continue to see demand build as we move into the fall and wintertime,” he said. “Hopefully that continues to do that and allows us to hopefully pull some of these prices up.”
The low prices, sometimes, have some benefits.
“What is fascinating to me right now, especially looking at the pork market, right now, they are as low as they have been all year, that as the affect of helping push our international sales along – we are selling at record levels right now, when we look at the global market structure for pork and hopefully should mean that, as we into the fall, and as we get caught up on our hog processing, we should see those pork prices rally because the demand is there and it is stronger than we ever have seen before,” he said. “I think there is potential for growth here in our marketplace for producers. But, it will be a challenging year. We have taken prices down low enough now where a lot of our farmers are challenged to be covering costs.”
Hart said there has been a fair amount of government support being directed to the agricultural community.
One of the first areas of support came from the Coronavirus Food Assistance Payments.
“Those have been directed towards farmers over the course of a couple months,” he said.
So far, it appears farmers have received 80% of those payments with the remaining 20% expected this fall.
Hart said we are also continuing to see Congress discussing additional support programs for agriculture.
“In fact, the last updates I received from colleagues that work out in Washington D.C. is that both the House and Senate packages, they are looking at passing for continued coronavirus support to include more direct payments for farmers,” he said.
Another source of income, Hart expects will come from the farm bill’s Agricultural Risk Coverage and Price Loss Coverage programs.
“Those will likely pay out for the 2019 and 2020 crops,” he said. “For those that are suffering from drought conditions, definitely, crop insurance will provide some protection this year. Crop insurance will be the main tool that will provide income support to farmers this fall.”
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