Frayne Olson, NDSU

Frayne Olson, NDSU Extension crops economist, during a webinar on March 27 hosted by NDSU Extension.

In the U.S., Homeland Security has identified agriculture, food and transportation system workers as essential during the COVID-19 pandemic.

“From the agricultural world, it gives us a lot of flexibility to get our jobs done – even though the (COVID-19) orders may be very restricted for the movement of people. Agriculture is one of the protected industries,” said Frayne Olson, NDSU Extension crops economist, during a webinar on March 27 hosted by NDSU Extension.

North Dakota Farmers Union president Mark Watne, in a separate interview, said we should not underestimate the value of family farmers and ranchers.

“Food and water are obviously essential to life. We can’t underestimate the value of what family farmers and ranchers produce. With this pandemic, there’s been an awakening to that fact with all the panic shopping we’re seeing in grocery stores,” Watne said. “As a country, we need to provide the means for family farmers and ranchers to be successful and thrive. It’s important to maintain a diverse food production system. That’s the bottom line.”

In the short-term at least, ag inputs, including fertilizer and chemical, should still be available throughout the COVID-19 shelter-in-place orders.

“There is still a safety valve allowing the movement of food and agricultural products, as well as our transportation systems,” Olson said.

Employees that are protected under the “essential” designation include: food manufacturing, farm and animal, firms supporting food, beverage and feed distribution, those in production of ag inputs and firms making equipment and infrastructure needed for ag production and distribution.

 “That (protection) includes (employees involved in) basically all of the inputs needed for the ag system, including the manufacturing of chemicals, medications, vaccines and other inputs,” Olson said.

That means all inputs needed for ag production should be available for spring planting, especially because those products were manufactured and sent before the outbreak.

These inputs should be able to continue to be manufactured and moved throughout the pandemic – at least on paper.

“In spite of the protection, the U.S. ag industry is concerned about the flow of products,” he said.

All of the transportation workers that haul products for ag, including dispatchers, repair techs, warehouses, ports, maritime and others, are allowed under the “essential” status to continue to be able to work.

Olson looked at the supply chain movement in Argentina and Brazil, both U.S. ag competitors.

“The moral of the story is the (ag) infrastructure we have in the U.S. is open for business, but we have to do business a little bit differently than we have in the past,” he said. “The flow of materials should be left open, even though we have the shelter-in-place orders.”

In Argentina, more than 70 municipalities have enforced anti-coronavirus measures and that is influencing grain truck movements.

“This morning (March 26), Argentina port workers are asking the government to suspend grain, as well as all export operations in the ports for 15 days,” he added.

Soybeans coming into Argentina’s crush facilities, which use the largest amount of soybeans in that country, have been cut in half.

In Brazil, farm groups warned the government that grain, coffee and sugarcane growers face challenges with freight, harvest and farm equipment due to restricted movement.

“Current port movements out of Brazilian ports are normal, but the arrival of some soybean shipments to China have been delayed due to issues at the port,” he said.

What U.S supply chain risks are out there with the shelter-in-place orders?

“While ag travel is not restricted, we may have issues with the companies that are impacted, both import and export companies,” Olson said.

New Orleans may be the next port city to be heavily impacted by COVID-19.

“The Gulf of Mexico and New Orleans ports are going to be impacted by that (virus),” he said. “The Pacific Northwest ports (Washington, Oregon) that we rely on for grain movements from this area are in part of that port area.”

Port employees could be impacted by the pandemic. That is also true of the employees of other ag industries, including wheat mills, oilseed crushing plants, slaughter plants, feedlots, grain elevators, fertilizer plants, railroads, trucking and many more.

“Even though we are allowed to travel, that does not mean we might have some supply disruptions,” he added. For instance, steps to unload/load products may have to be changed due to rules to protect individuals.

Each company must set its own protocols regarding employee interaction, sanitizing facilities, customer interaction and working from home.

“The biggest supply chain risks are the spread of COVID-19 between employees and customers and the virus spread within a company, such as employee absenteeism,” Olson said.

In some cases, skeleton crews are being used in some companies to be able to carry on essential function if an outbreak occurs in the “A” team. There is a steep learning curve to hire new employees.

Tim Petry, NDSU Extension livestock economist, also spoke during the March 27 NDSU Extension webinar about the volatility the virus has caused cattle markets.

“We have seen extreme volatility and the futures market has been more volatile than the cash market,” Petry said.

Last spring, the corn planting issue dropped cattle markets, but as soon as the market received more corn than expected, cattle markets did better.

“Then in August last year, we had the Tyson fire, which at the time we thought was the most catastrophic event we would have for the year. That is benign compared to what is happening now,” he said.

The market was aware the fire involved only one plant, and in less than two months the markets were back up with the “futures above what they were before the fire and the cash market.”

At the beginning of 2020, feeder cattle futures and cash markets were up. When COVID-19 hit, the markets dropped, although local markets are doing better.

“Futures have come back somewhat, but when the market goes down, everybody wants to short the market,” he said.

Even without the coronavirus, there are problems in the feeder market. The feeder cattle market is a thinly traded market, around 30,000 contracts, while the corn market trades with more than a million contracts.

“There is all this extreme volatility now in the (cattle) markets, and there was volatility before the recent events. The new normal is volatility,” Petry said. “We are going to have to be better managers and use as many risk management tools as possible.”

Some of those include: cash forward contracts, video and Internet auctions, CME futures, CME options, and the Livestock Risk Protection (LRP) program, which is sold by crop insurance agents, costs a premium, and is subsidized by USDA now at 20 percent, up this year from 13 percent.

“But if the futures move the limit that day, the LRP would not be offered,” he added.

Petry averaged three North Dakota cattle sales barns, finding the feeder cattle markets were up on Friday, March 27. In addition, heifer replacement cattle sold better than steers.

“Get in and see your auction market if you need to sell cattle. They know the market,” Petry said. “Feeders in Nebraska need cattle right now. They have a lot of corn in the bunkers.”

In an effort to keep ag producers and others in the ag industry up-to-date with the effects of COVID-19 on ag economics, NDSU will continue hosting these informational webinars every Friday at 12:30 p.m., CST.

At the conclusion of the webinars, participants have an opportunity to ask questions using the chat device. NDSU would also like to have feedback from producers or new subjects or questions sent in to bring to the webinar the next Friday. See https://bit.ly/AgEconCOVID.