COVID-19 impacting ag industry, final effects unknown

This week’s Solid Finances webinar hosted by Montana State University Extension had economists examining the COVID-19 pandemic’s continuing effects on the agriculture industry and its supply lines.

MSU Professor of Economics Eric Belasco said while all ag commodities have been hit by COVID-19, the cattle market was hit particularly hard with live and feeder cattle markets declining. He said live cattle prices have dropped by 22.8 percent since mid-February, with feeder prices dropping 16.4 percent.

He said based on futures contracts these prices will continue to decrease over the coming months, but the drop will be less dramatic than the one seen in the immediate aftermath of the pandemic.

However, he said, the current prices were not record-setting and the volatility of those markets is more extreme.

“The volatility that we’re seeing right here is upwards of 50 percent which is just off the charts,” he said, “That’s something we’d be expecting in oil markets not cattle markets.”

He said that volatility is expected to level out going into the fall, but cattle producers should take extra consideration of these factors when selling their product.

Belasco said another concern he has is the supply disruptions that have taken place throughout the ag industry.

He said meat packing plants are feeling the effects of COVID-19 and overall pork and beef production has slowed as a result while the demand for these products in grocery stores has risen.

He said there is a bottleneck happening at processing plants due to their inability to work at full capacity while maintaining social distance.

He said whether the industry at large would be able to deliver product from the ranch to grocery stores as consistently as before the pandemic is an open question.

MSU Professor Emeritus Gary Brester said food processing in general requires people to work in close proximity. Brester said there are many plants that are taking COVID-19 very seriously, having everyone wear masks and gloves at all times and setting up foot baths between the different area in the facility.

He said processing plants might attempt to speed up their process by, for example, shipping whole chickens instead of having them cut up before packaging.

“We might be seeing a lot of Google searches about how to take a chicken apart,” he said, jokingly.

Belasco said these slowdowns are already having significant effects on the market.

“Already we’ve seen some big reductions in supply,” he said.

He said an important question is how far these disruptions will go and how can they be mitigated?

“If this becomes a prolonged issue in the processing facilities then that presents some major risk factors to the beef sector,” he said.

On the demand side, Belasco said, there is a clear relationship between the level of people’s disposable income and beef purchases, so the severity of the coming economic recession could also have serious negative consequences for the beef market in the long term.

However, he said, in the immediate aftermath of the pandemic the demand for raw beef in grocery stores has risen. But at the same time, the restrictions on restaurants have caused the demand for the more premium cuts of meat to drop significantly, which has affected the market negatively.

“So much of the beef industry relies on restaurants,” Belasco said.

He also raised the question of what affect the pandemic would have after it ends. Belasco said he wonders whether this event will bring countries closer together and improve trade or will it drive us apart.

“Will it lend itself to new market expansion and trade negotiation, or isolationism? Think that’s an open question,” he said.

Belasco also said labor would be a big uncertainty for the cattle market going forward and said that subject would be examined in greater detail in next week’s webinar.

MSU Professor and Associate Director of Montana Agricultural Experiment Station Anton Bekkerman said that since start of the pandemic, certain commodities like corn, cotton and soybeans have fallen significantly, while others like wheat and rice of risen. He said this is highly unusual and commodity prices tend to rise and fall, more or less, in tandem with each other.

“Things are different, this is not the way we typically see that ag commodity prices move,” he said.

Bekkerman said the reason these particular commodities are doing well is because people are cooking at home more since the pandemic started and wheat especially is a staple of cooking.

He said a question to consider is how long these effects on the ag market will last.

Brester said the pandemic is also affecting farming itself, but he hopes that things will pick back up in the months ahead.

“If we have luck at all on our side, and I hope we do, maybe by this late summer as we start seeing combines move into the fields,” he said, “… Things will be in a lot better situation and some of these markets will probably start to adjust back upward, but it all depends on how long of a process we’re in for this is and the severity of that particular process.”

The next Solid Finances webinar will be at 2 p.m. April 24, and can be viewed for free at http://farmpolicy.msuextension.org/covid19 .

Economics Associate Specialist at MSU Extension Joel Schumacher said the series is planned to run for an additional week and will hold another webinar on April 30 as well.

“Labor is one of the biggest uncertainties in the agriculture markets,” Belasco said.