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Agriculture under the Specter of COVID-19

Lee Schulz (lschulz@iastate.edu) and Chad Hart (chart@iastate.edu)

The covid-19 pandemic has forced a lot of changes in the six months since the previous issue of Agricultural Policy Review—schools shuttered, businesses closed, physical distancing and stay-at-home orders were put in place, and the economy severely contracted and jobs were lost.

Agriculture felt the sting of COVID-19, just like other sectors of the economy. The virus limited production and processing, stifled demand, and undercut prices. Now, as many states reopen major segments of their economies, most people are reassessing their short-term business plans and adjusting to the business environment under the auspices of living with the virus. Agricultural producers and USDA are reevaluating commodity market outlooks; and, thus far, the outlook changes are much more concentrated on prices than production.

We compare USDA’s meat, corn, and soybean projections from January 2020 (before the first confirmed case of COVID-19 in the United States) to the most recent update, released in mid-June 2020. The changes reflect not only the impact of COVID-19, but also the first few months of progress (or lack thereof) with the phase one trade deal with China. In general, the outlook switched from cautious optimism to a financial struggle.

The livestock sectors have all taken a step backward in terms of production. In January, projections were for record or near-record production across the meat counter. Animal numbers were building as domestic demand was good and exports were strong. However, between the closing of restaurants and schools and the COVID-19 outbreaks at processing facilities, the meat supply chain has been forced to adjust and evolve. The ability to process animals in a timely manner faltered and livestock producers found severely curtailed markets for their animals, even though demand for meat remained strong. As things currently stand, USDA projects lower total meat production for 2020 by 3.15 billion pounds. Pork and broilers face the largest losses, with roughly 3% drops in projected production. However, USDA also reduced beef and turkey production by more than 2%.

Processing capacity has mostly recovered, but a backlog of animals still exists. That backlog is the driving factor for livestock prices. The initial hit in prices from COVID-19 was fairly sharp, with futures prices for cattle and hogs falling by 30%–40% in the depths of the outbreak. Cash prices for animals fell even harder, as processing plants shut down and the number of animals moving to market overwhelmed the remaining shackle space. However, as plants reopen, the backlog is shrinking and prices have rebounded. USDA shows less recovery for hogs and broilers than for cattle and turkeys, with both hogs and broilers seeing prices 20% below the January estimates. Thanks to stronger prices in May and June, USDA projects the turkey industry will capture a higher average price this year. Thus, for most of the livestock sector, the 2020 outlook is a double hit financially, with production and price losses.

For crops, the outlook changes are smaller, but the financial hit is similar—price declines dominate the story. The COVID-19 outbreak is impacting two crop years—last year’s harvest, which farmers are marketing now, and the crop currently growing in fields, which farmers will market next fall through the summer of 2021. The USDA projections display that same double barrel shot for crop producers for the 2019 crop, reducing both production and prices. The production drop was due to the delayed progress of crop last year, from planting to maturity to harvest. The delays were severe enough that some fields could not be harvested, hence the cut in production. Thus, the production loss was not COVID-19 or trade dispute related, but the 2019/20 price declines were. Corn usage fell as the ethanol industry reeled from the effects of stay-at-home orders and the associated free fall in fuel usage. Soybean exports continued to struggle, even with the signing of the phase one trade deal; and, based on those usage losses, USDA has lowered their season-average price estimates for both crops by roughly 6%.

But the adjustments did not stop with the 2019 crops. The COVID-19 outbreak coincided with the planting windows for corn and soybeans. Previously, during the winter, USDA had projected that farmers would plant more corn and soybeans in 2020 than they did in 2019, partially in response to last year’s weather issues. In March, farmers indicated to USDA that they would plant even more corn than expected, but a few less soybeans. At the end of this month, USDA will provide an update on plantings, and given the planting progress data over the spring, we know planting went well across the vast majority of the country. Thus, projected crop supplies are up significantly from last year, but for soybeans, projections are down slightly from the winter estimates.

On the usage side, USDA has projected some recovery from the COVID-19 impacts, but not complete recovery. For corn, ethanol usage is projected to remain lower. While ethanol production has increased over the past few weeks, several ethanol plants remain closed. USDA’s outlook keeps some of those plants closed for the foreseeable future. Corn feed usage is projected to increase, mainly due to the backlog in animals discussed earlier. The meat processing disruptions translated into longer transitions for animals on feed. Also, with the closures of ethanol plants, distillers grains production fell, leaving a significant hole in the feed market. Direct corn feeding is replacing some of that lost distillers grains.

The drop in distillers grains production also opened an opportunity for more soybean meal in feed rations, which explains the rise in soybean crush for both the 2019 and 2020 soybean crops. But the largest wildcard for soybeans remains exports. The export sales pace for the 2019 soybean crop has lagged well behind the previous year’s pace and USDA has had to lower their expectations accordingly. But for this year’s crop, USDA is projecting a sizable rebound in soybean exports, mainly driven by China and the phase one trade deal.

After accounting for all of the shifts, USDA’s price outlook for the 2020 crops mimics the adjustments made for the 2019 crops. Season-average prices are set to be roughly 6% below the January estimates. So while both the nation and agriculture are recovering from the COVID-19 outbreak, the recovery will take some time and the impacts will still be felt months, if not years, after the fact.

Table 1. USDA 2020 Meat Production Estimates
January June % Change
(Billion Pounds)
Beef27.4426.67-2.8%
Pork28.6527.77-3.1%
Broiler45.4044.04-3.0%
Turkey5.915.77-2.4%
Source: USDA-WAOB.
Table 2. USDA 2020 Livestock Price Estimates
January June % Change
($/CWT)
Cattle117.25108.58-7.4%
Hogs54.5042.38-22.2%
(¢/LB)
Broiler86.3069.90-19.0%
Turkey92.30104.9013.7%
Source: USDA-WAOB.
Table 3. USDA Corn Estimates, 2019/20 and 2020/21
2019/20 2020/21
January June % Change January June % Change
(Billion Bushels)(Billion Bushels)
Production13.69213.617-0.5%15.54515.9952.9%
Feed and residual5.5255.7003.2%5.7756.0504.8%
Ethanol5.3754.900-8.8%5.4505.200-4.6%
Exports1.7751.7750.0%2.1002.1502.4%
($/Bushel)($/Bushel)
Price3.853.60-6.5%3.403.20-5.9%
Source: USDA-WAOB.
Table 4. Soybean Estimates, 2019/20 and 2020/21
January June % Change January June % Change
(Billion Bushels)(Billion Bushels)
Production3.5583.552-0.2%4.2004.125-1.8%
Crush2.1052.1401.7%2.1352.1450.5%
Exports1.7751.650-7.0%1.8952.0508.2%
($/Bushel)($/Bushel)
Price9.008.50-5.6%8.858.20-7.3%
Source: USDA-WAOB.