Beset by tough markets, farmers now dealing with COVID-19 implications

None of us feel secure right now. Stay the course and follow your plan, but make adjustments if needed.

April 13, 2020

5 Min Read
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Farmers across the country were already dealing with trade conflicts, weak commodity prices and ever-challenging weather and then the COVID-19 pandemic hit.

"Life has changed as we know it. We're all trying to figure out what this is and how it will affect agriculture," said Kansas State University agricultural economist Robin Reid during an April 8 webinar. The event was one of two offered for women in agriculture as a follow-up to a winter series "Farm Financial Skills for Kansas Women in Agriculture."

The presentations are available online on the website.

"We were already in a challenging time for agriculture," says LaVell Winsor, agricultural economist with the K-State Research and Extension Farm Analyst program.

Like families across the country, Winsor notes that school closures linked to the pandemic have farm families figuring out how to handle having children at home when they normally would be in school. In many cases, one parent is either working from home or has an off-farm job to go to while the other parent is getting spring crops planted and tending to livestock.

"In highly volatile times, no one is going to stop eating, but we are learning a lot about how the supply chain works and how it can be disrupted," Winsor says.

Farm families are used to dealing with uncertainty — always-changing weather, shifting trade policy and competition from other countries. But in this case, Winsor says, the pandemic is a "black swan" event — one that could not be predicted or planned for but that could have catastrophic effects. The spread of COVID-19 and resulting stay-at-home orders, business closures and potential supply chain disruptions due to transportation or labor difficulties are presenting even more uncertainty and anxiety than farm families normally deal with.

Dairy, beef cattle, hogs and corn have been hit the hardest, Reid says, adding that the corn market received a double whammy — the oil trade war between Russia and Saudi Arabia which has driven oil and gasoline prices lower, plus less demand for ethanol because the pandemic-related stay-at-home orders means drivers are driving less.

About one-third of ethanol plants are predicted to close, Reid says, which reduces the need for corn.

Because of the predicted plant closures, an estimated 200 million to 500 million fewer bushels of corn will be needed this year compared with last. USDA has estimated a large corn crop this year if farmers are able to plant in a timely manner and input supply chains are not disrupted.

"USDA had projected a $3.60 Marketing Year Average for this year's corn crop," Reid says. "I don't believe that estimate will last because of the factors that are bringing corn prices down."

A bright spot is that U.S. grain sorghum prices are strengthening because China has been making recent purchases. In some areas, grain sorghum prices are higher than corn prices, which is unusual, Reid says.

Wheat prices also have been given a boost because countries such as Russia, Ukraine and Kazakhstan are stockpiling wheat for domestic consumption as fears of a prolonged quarantine grow, she adds.

"As bread is flying off the shelves, we've seen more demand for wheat. That's really the biggest boost," Reid says.

Agricultural processors cannot always change quickly, which adds uncertainty to farmers deciding what crops to grow or how much milk or meat to produce. Reid gave the example of dairy processing-related businesses that provide individual packets of butter to now-closed restaurants and school districts. They don't always have the equipment or ability to quickly pivot to a different product. Similarly, with restaurants closed, the demand for higher quality beef is curtailed. Grocery shoppers are still buying beef but tend to purchase lower-priced cuts, such as ground beef.

Compounding the uncertainty is that some farms and agricultural processing companies are dealing with labor difficulties, including several meat processing facilities closing temporarily. Some employees are not coming to work, either because they now have small children at home to care for, have become sick or are concerned about getting sick.

"The bottom line is, we have a lot of cattle and the bottleneck is at the packing plants and processors," Reid says.

The economists summarized the $2.2 trillion Coronavirus Aid, Relief and Economic Security Act, also known as the CARES Act, the largest relief package in U.S. history. Among the provisions are $9.5 billion in direct relief to agricultural enterprises, including livestock, dairy and specialty crops, and $14 billion to the Commodity Credit Corp. for funds spent previously.

In her work as an economist with K-State's Farm Analyst program, Winsor works one-on-one with farmers. She encourages farm families to consult with key advisers, including business partners, which in some cases are other family members, lenders, brokers or marketing advisers, agricultural retailers or others.

"We don't have to bear the responsibility of decisions by ourselves," says Winsor, who herself is a partner in her own family's farm operation.

"When I sit down with farmers at the kitchen table, the ones who are willing to make decisions are usually the ones who come out ahead. When we're uncomfortable, just making one decision is helpful," Winsor says, noting that it may be shifting some acres you plant to one crop in favor of a different one.

Other tips include:

  • Discuss a farm safety plan. Wash hands. Stay home if you're sick. Wear masks.

  • Be empowered to make decisions. What positive steps can you take now? Buy options on commodities? Buy stocks?

  • If it feels like your plan has blown up, consider where you have control. Continue with ordinary tasks such as spring planting and feeding livestock. It can make us feel normal.

  • Make amendments as needed. Review the government stimulus plan for anything that might impact you. Control your costs. Look at refinancing options on loans.

  • Review marketing plans. This may be an opportunity to lock in prices for wheat. With expected closing of some ethanol plants, this might be a time to lock in basis levels on corn. With ethanol plants closing, dried distiller's grains may be replaced by soymeal in livestock rations.

"I can't emphasize this enough — continue to look at your farm financials," Winsor says. "None of us feel very secure right now. Stay the course and follow your plan, but make adjustments if needed."

Source: K-State Research and Extension, which is solely responsible for the information provided, and wholly owns the information. Informa Business Media and all its subsidiaries are not responsible for any of the content contained in this information asset.

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