Dairy supply-chain image

Supply-chain disruptions will keep pressure on global dairy markets through much of 2020, Rabobank predicts.

Producers have grown accustomed to a slumped agricultural economy, but the onset of COVID-19 – or coronavirus – in the U.S., many producers are left wondering where they stand amongst the slumping global economy.

Brian Hoops, the resident agricultural economist for the Tri-State Neighbor and CEO of Midwest Marketing Solutions, said that while market disruptions have happened at a level that no one saw coming, there isn’t a reason to assume this will be unlike most recessions.

“We’ve always recovered and moved back to new highs in six to nine months, however long this may be,” Hoops said, but regardless, he expects major economic changes on the horizon.

The cattle market nosedived since COVID-19 hit the U.S., and while the futures market has always been tied to the stock market, Hopes said this dip was facilitated more by the lack of demand, rather than recession.

“People aren’t going to spend as much money when they go out to eat, but in the last week it went into a panic with people being quarantined at their homes,” he said.

World markets had an impact, too. China stopped accepting imports over the last few weeks due to the country’s own quarantine. That dramatically shifted the outlook for hog and cattle.

“I’m in the view that things will get back to normal but it may take several months,” he said.

The pandemic came at an interesting time for grain. Over the next few months, U.S. grain would typically be falling off as South American markets come online. So while the pandemic has lowered demand, it hasn’t dramatically affected an already stagnant U.S. market.

“We’re not feeling like that’s a huge loss,” Hoops said. “But on the same token, there’s not as much overall demand.”

It’s uncertain how long the virus will keep spreading or the long term effects it will have on the economy. As farmers begin to plant and – maybe – even harvest through a pandemic, Hoops said he worries that an increase in corn and soybean acres over what was planted last year could mean a huge oversupply if demand hasn’t returned by fall.

Brian Hoops

Brian Hoops, president and senior market analyst for Midwest Market Solutions.

In an effort to stimulate the economy, the Federal Reserve dropped interest rates to near 0%. That has kept land values and borrowing power strong, meaning many farmers can continue to borrow against their land value with very favorable rates.

Hoops said it’s challenging to provide advice during this pandemic. While he traded through bad ag markets during 9/11 and the mad cow disease scare of 2003, there has been nothing like COVID-19.

Everything is an unknown at this point, said Matthew Elliot, an assistant professor and South Dakota State University Extension agribusiness specialist.

While grain and livestock markets will be affected directly, Elliot looked at another aspect of the pandemic that has shaken up the ag world – the inability to meet face-to-face. He said that canceling and postponing all planned events for the foreseeable future has slowed down companies’ ability to expand new product lines, investments and other aspects of their business.

While it’s impossible to put a dollar amount on losses stemming from those cancellations, Elliot said that the hope is that farmers can continue their 2020 plans without any hiccups. Supply lines have yet to be dramatically affected, he said.

It’s the auction barns, grain processors and port operations that may have to change their ways of doing business or operate at a reduced capacity.

Elliot said the ag economy, and the rest of the world, is simply in “uncharted waters” moving forward.

But he and Hoops agreed that the possible silver lining to the pandemic and the resulting changes in the ag economy may come in the form of risk management,.

Matthew Elliot

Matthew Elliot

“The market volatility may result in opportunities for farmers to reduce the cost of risk management using some more complex hedging strategies,” Elliot said.

“Risk management is key, even when you think you don’t need it, that’s when we need it the most,” Hoops added. “We preach to clients to have options in case a disaster takes place.”

As of March 20, Hoops said farmers should be optimistic that the pandemic will run its course in due time. While demand may falter, Elliot said that with supply lines holding strong, there is no reason to be overly concerned that planting and harvest will be affected by the virus.

On the livestock side, as quarantines are lifted, there is reason to believe that many consumers would jump at the opportunity to once again go out to eat, shop for new cuts of meat, and do the things U.S. consumers do so well – consume.

Reach Reporter Jager Robinson at 605-335-7300, email jager.robinson@lee.net or follow on Twitter @Jager_Robinson.