The COVID-19 pandemic is causing havoc in the economic world. But farmers are still trying to figure out what it is doing and what it might do to the agricultural markets.
One thing that appears certain is the pandemic has changed the market outlook, according to Rob Johansson, chief economist at the USDA.
Johansson participated in an April 3 webinar hosted by the University of Illinois through its farmdoc website. He said that at the start of 2020, the view for agriculture looked brighter for the coming year than it had for the previous year.
“In February it looked like we were going to have a better year,” Johansson said.
Since then, the unemployment rate has skyrocketed and the dollar has remained strong in comparison to other currencies. Ethanol margins have also “declined fairly dramatically” thanks to low oil prices and lower fuel usage.
“We did see some optimism at the beginning of the year,” Johansson said. “Now the outlook is murky at best.”
One thing that is still difficult to tell is whether China is recovering faster from the crisis and thus might be able to meet its obligations under phase one of U.S. trade negotiations. Johansson said Secretary of Agriculture Sonny Perdue still didn’t think another round of Market Facilitation Program (MFP) payments would be necessary, but he didn’t rule it out.
There are, of course, many other questions. The Coronavirus Aid, Relief, and Economic Security (CARES) Act passed by Congress recently includes over $48 billion for USDA, including money for food programs and for the Commodity Credit Corporation.
There is some concern about the partisan sniping with the food sections of that bill, according to University of Illinois economist Jonathan Coppess.
“We hope cooler heads prevail,” he said of the bickering, explaining those programs benefit farmers in the long run and any long-term disputes over those programs could make it more difficult to pass the next farm bill.
University of Illinois economist Gary Schnitkey said during a March 31 webinar that old-crop grain would likely feel the first impact from market price reductions in agriculture. For some farms, that could raise cash-flow issues. Sales of future crops could also be impacted, but the timeline is longer so the impact on those crops is more difficult to assess.
The Agricultural Risk Coverage (ARC) and Price Loss Coverage (PLC) payments due to be sent out in October could increase from previous expectations due to a decline in 2019 market year average prices.