Crop and livestock prices could tumble by as much as 12 percent this year due to the coronavirus pandemic, pulling farm income down by $20 billion dollars, said the FAPRI think tank at the University of Missouri on Monday. “A lot of producers already are already in trouble. This is going to make it more severe,” said FAPRI director Pat Westhoff.
The FAPRI report was one of the first assessments of the pandemic’s effect on agriculture. Farm sector losses could be offset by coronavirus relief, said Westhoff. President Trump says $16 billion in aid is forthcoming but the administration has yet to say how it would be divided among producers.
Market prices for major commodities, such as corn, soybeans, cotton, cattle, hogs and milk, have fallen sharply since the coronavirus reached the United States. An economic recession is looming due to aggressive efforts, including stay-at-home orders.
When the estimated $32 billion slump in crop and livestock income is combined with other elements in the farm sector balance sheet, among them lower production costs and an upturn in farm subsidies, the result is a $20 billion decline from FAPRI’s previous estimate of $106 billion in net farm income this year—a 19 percent decline. Net farm income includes grain held in storage and is a gauge of wealth.
“Livestock receipts drop more than crop receipts in 2020, given the relative changes in market prices,” said the FAPRI report. Livestock prices were forecast to fall by 8-12 percent and crop prices by 5-10 percent.
Americans are driving few miles and burning less gasoline than usual, reducing demand for corn ethanol. FAPRI estimated ethanol production at 14.8 billion gallons, down by 1.4 billion gallons due to the pandemic. If true, that would mean a 500 million-bushel drop in corn usage. Usually, more than 5.4 billion bushels of corn is used annually in making the biofuel.
FAPRI incorporated lower consumer spending in its estimate but did not consider disruptions in the supply chain that could reduce prices paid to producers, such as shut-downs and slowdowns at processing plants. For example, Smithfield Foods said its pork plant in Sioux Falls, South Dakota, was “closed until further notice” due to Covid-19 cases among its workers. The plant is the ninth-largest hog slaughterhouse in the country.
“If we don’t have processing facilities that are open, that means those animals get backed up. There is less demand for those animals so it places downward pressure on live animal prices,” said Westhoff.
Each 1 percent reduction in slaughter capacity is associated with a 1.8 percent drop in market prices for hogs, according to a recent analysis. “Hog prices have already been tumbling over the past couple weeks, potentially reflecting the market’s expectation of some capacity being off-line,” wrote Purdue University economist Jayson Lusk in a blog last week.
The actual impact of the pandemic will depend on its intensity and duration, said FAPRI. Its analysis assumed a “V-shaped” recession, with the biggest downturn occurring from March-June, followed by speedy recovery in the second half of the year. “While it may not be fair to characterize this as a best-case scenario, worse outcomes are possible,” said FAPRI. ‘If Covid-19 continues to disrup economic activity through 2020 and into 2021, the recession could be farm deeper and last longer.”
To read the FAPRI report, “Early estimates of the impact of Covid-19,” click here.