As coronavirus cases rise across the country, ag economists expect producers could face headwinds such as volatility and uncertainty in demand for their products for the remainder of the year and into 2021.
California, Florida, Texas, and New York have the most COVID-19 cases so far, and the nationwide case total has topped 3.76 million cases, according to the Centers for Disease Control and Prevention. More than 140,000 people have died as a result of the disease.
These states, the four most populous in the country, are also taking steps to slow the spread of the virus that will have direct impacts on food and agriculture. States like California have already asked restaurants to close indoor service in counties with spikes in cases, while Texas has limited restaurant capacity to 50%.
Sean Kennedy, executive vice president of public affairs for the National Restaurant Association, said state and local government mandates have shut down almost 100,000 restaurants.
John Newton, chief economist at the American Farm Bureau Federation, said even though the number of deaths each day is far lower than what was observed in mid-April, rising cases could affect demand in a variety of ag sectors.
“We saw that in the ethanol industry over the last couple of days. With the spread of COVID-19, the demand for gasoline is likely to fall and that could hit the ethanol industry,” Newton told Minnesota Farm Bureau members recently.
Newton said food service saw an increase in demand since April, but noted that could change if states go back to mandatory stay-at-home orders.
“Census data shows that food service and drink establishments had retail sales of nearly $50 billion in June. That’s up sharply from the low we set in April,” Newton stated. He also thought a big question for food service demand will be if schools resume classes in the fall.
John Newton, Farm Bureau
On July 13, California Governor Gavin Newsom ordered indoor restaurants and bars in certain counties with COVID spikes to close; some of those businesses are still allowed to operate outdoor service.
Taylor Roschen, policy advocate for the California Farm Bureau, told Agri-Pulse until recently, some restaurants were able to open back up and transition, allowing for fruit and vegetable growers to catch their breath and reevaluate contracts with purchasers.
“It’s that start-stop nature that makes it even more difficult to be forward-thinking about managing their risk and what they are going to be doing with their commodities,” she said.
Producers do not have confidence that the next few days or weeks will see customers coming back consistently, or whether they will just be onetime purchasers, she said.
With respect to future supply chain disruptions, Newton said things are different today because, he argues, more personal protective equipment is available in meat processing facilities to keep people safe.
“I think that is going to help to avoid any type of plant closures or at least minimize the risk of any type of plant closures,” Newton said.
In the dairy sector over the last week, block cheese prices have hit close to record highs. Last week’s average was $2.83, which is nearly double what the price was a year ago at this time, according to USDA’s Agricultural Marketing Service.
University of Minnesota Assistant Professor Marin Bozic told Agri-Pulse the prices are buoyed by a considerable amount of government support coming in as exports increase and restaurants begin to refill their orders.
But he has questions on how long that will last.
“(The government) will run out of the currently authorized funds. And sure, there might be a next stimulus, but I wonder what will be the appetite to continue this very generous support for various ag sectors after the November elections,” he said.
Bozic also questions how long the rally will be sustainable. Retail growth rates have started to slow in recent weeks, and he expects food service to get sluggish if COVID-19 infection rates continue to go up.
From a risk management standpoint, Bozic says many producers are frustrated with the options currently available to them.
Marin Bozic, University of Minnesota
He said premiums for CME options or government programs like Dairy Revenue Protection are quite high, leaving producers with a suite of available —but expensive — risk management tools.
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“Call anyone in the dairy sector and they couldn’t really tell you whether it is more likely that they’ll end up with a $10 milk or $24 milk price six months from now,” Bozic said.
He noted the level of uncertainty is extremely high. Bozic said the U.S. could either emerge from the pandemic quickly or be stuck in a “pandemic induced recession” that takes on a life of its own.
“As more and more Americans struggle to keep paying bills, we could be again in a very low-price environment that is dramatically lower than what the futures price indicates,” he said.
Newton also noted that crops that went into the ground this year and will be harvested this fall have seen demand take a significant hit due to the coronavirus.
"The value of those crops has fallen by billions of dollars, and with lawmakers considering this next coronavirus relief package, I think it is important to acknowledge the impact of the coronavirus on our new crop commodities," Newton said.
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