By Jennifer Dorsett
The novel coronavirus (COVID-19) has altered every aspect of the American economy, including agriculture.
Volatile markets have led to increased uncertainty for farmers and ranchers who are facing tough decisions.
The economic uncertainty related to the impact of COVID-19 on the global economy and the destruction of demand for many agricultural products contributed to significant price declines for ethanol, crops and animal proteins. The decline in futures prices likely coincided with declines in cash market prices, as well.
COVID-19 is dramatically impacting agriculture, and the challenges don’t appear to be slowing down.
The social distancing and quarantine protocols implemented to slow the spread of COVID-19 have reduced economic growth, shuttered consumers in their homes and changed the way Americans purchase and consume food.
The slowing economy is bad for all animal proteins, but beef—typically the highest-priced of the proteins and considered a luxury product in economic terms—stands to suffer the most when consumers spend less in response to wage cuts and job losses.
Since Jan. 14, June live cattle future prices have declined by more than 30 percent, to around 85 cents per pound, while boxed beef cutouts reached record highs in mid-March to early April before decreasing slightly.
This is due to a variety of factors including reduced foodservice demands, shifts in beef primal cut values as consumers stocked up on cheaper retail cuts, slowdowns at beef packing plants and the way beef is ordered and sold for retail, according to the American Farm Bureau Federation (AFBF).
“This global pandemic has injected never-before-seen uncertainty into the cattle and beef markets,” John Newton, AFBF chief economist, said. “As consumers were emptying meat cases, the boxed beef cutout rose to historic levels, and cattle futures zigged and zagged as far as they could in both directions—all while cash markets gyrated wildly.
The closure of meat packing plants also impacted the cattle sector.
Processing capacity across the U.S. is aligned with consumer demand and fed cattle supply. The loss of packing plants narrows the outlets for those cattle ready to be harvested. This creates a log jam on the supply that reverberates to other segments of the cattle sector.
Another area causing concern is cattle auctions.
Gulf Coast Livestock Auction owner and general manager Eddie Garcia, whose business is located in Alice, said he received guidance from the Livestock Marketing Association on handling social distancing.
Garcia is only allowing “essential buyers” into the sales auditorium and has capped attendance at 50 people.
And the downturn in cattle prices has taken sale barn owners and buyers on a wild ride.
“There were a couple of weeks leading up to this turnaround where the buyers really didn’t know where to grab ahold of,” Garcia said. “It just really caused a lot of uncertainty within the markets and especially the buyers. Can you imagine buying something for $700 or $800 and the next day it’s worth $50 to $100 less?”
Some livestock sale barn facilities are open in Texas depending on the location, while others have temporarily closed. Various social distancing guidelines have been implemented to ensure the safety of buyers, sellers and staff.
Schools and restaurants are major buyers of dairy items like milk, cheese and butter. Because many of those facilities are closed, demand was reduced at a time when milking traditionally increases in the spring, Texas Association of Dairymen Executive Director Darren Turley said in an interview with Texas Farm Bureau Radio Network.
“When you get out of cold weather and you start getting back to mild climate, you also have fresh green grass and cows give more milk,” he said. “This is a peak time for us.”
Even though consumers initially purchased more milk at the grocery store during panic-buying, that didn’t translate into higher milk prices because of the nature of the purchases.
Bulk orders traditionally make up the largest portion of sector demand—items like hundreds of individual-sized cartons of milk for schools, 20-pound cases of shredded cheese for restaurants and 55-pound butter cartons. Processing plants have specific production lines configured for these products, and it’s difficult to change them overnight.
“With the change in foodservice and everything that we’ve seen through this stay-at-home process, we have the equivalent of 1,100 milk trucks per day in the nation not being used to make cheese that were in the weeks previous. That’s just cheese,” Turley said. “We have a lot of milk in the market that is searching for a home at a time when most of the country is at or close to its peak milk production for the year.”
Milk from a dairy farm is typically processed and on the shelf in a short amount of time. Because it’s perishable, it must be dumped if there is no buyer.
The dairy association is deciding on the viability of re-opening an old cheese plant and using it to make animal feed from some of the excess milk, but they’re unsure if it will be profitable.
“Everything is running at full capacity. We have put milk in every venue. We have pots full,” he said. “We ship it out of state, multiple states over. But as you can imagine, most states are getting to be in a similar status as we are with their production being relatively full and having a surplus of milk.”
AFBF economists noted futures prices for Class III milk—which is used for hard cheeses, cream cheese and whey products—is down 36 percent, or more than $6 per hundredweight, from January. Class IV milk that goes into making butter and dry milk powders is also down 34 percent, or $5.60 per hundredweight.
Dairy processors and cooperatives are requesting dairy farmers reduce milk supplies, as well as requesting the U.S. Department of Agriculture (USDA) to impose a supply management program in exchange for direct payments.
“Nobody likes to hear it, but I think the situation is far from over,” Turley said.
Pork and poultry
Major meat companies in the U.S. and Canada have temporarily closed plants due to cases of the new coronavirus among employees and concerns about its spread.
The closures have contributed to drops in price of livestock, including poultry and pork. Both sectors in Texas are struggling to alter production.
Restaurant closures have also contributed to large losses for the industries.
Although these integrated industries are equipped to handle such changes in a systems approach, the farmers raising these animals must still find ways to sustain productivity and farm profitability in a time of uncertainty.
Sheep and goats
Spring is an important time for lamb and goat markets with the arrival of two important holidays—Easter and Ramadan—when more consumers enjoy traditional meals with these proteins. In addition to restaurant closings, social distancing has prevented family gatherings that would have normally included lamb or goat.
The traditional markets for feeder and slaughter weight lambs have sharply declined during this period due to the uncertainty in meat consumption and processor closings.
The value of American wool has also been lost due to decreased access to vital export markets. The major wool trade partners were impacted by COVID-19 and their ports were shut down. U.S. farmers rely on foreign markets for about 80 percent of annual sales, and prices responded with 40 percent declines compared to 2019.
COVID-19 is affecting the textile industry, from the cotton field to retail stores.
USDA’s 2020 planting forecast predicted a slight increase to 13.74 million acres planted in cotton, a statistic Steve Verett, CEO of Plains Cotton Growers, recently said is unrealistic.
“I don’t know where they think that’s coming from,” Verett told Agri-Pulse. “I’m not hearing anybody saying they’re going to plant more.”
Instead, he expects Texas farmers to plant less cotton as cotton prices and forecasted consumption continue to spiral downward at record levels.
The latest USDA Foreign Agricultural Service (FAS) world cotton market forecast shows world cotton consumption is down 7.6 million bales from last month, the largest monthly change in USDA’s recorded data history.
The Intercontinental Exchange futures contract has fallen below 50 cents for the first time in over a decade, USDA said in the report. Global consumption is at a six-year low, world ending stocks are at the highest level in five years and stocks outside of China are 25 percent above the previous record.
No major commodity has been left untouched by the pandemic, including corn.
Since Jan. 14, corn prices fell 15 percent and ethanol prices fell 40 percent, according to an analysis by AFBF Chief Economist John Newton.
Since about 40 percent of corn’s demand is for ethanol fuel purposes, corn prices correlate heavily with crude oil and gasoline.
Data from the U.S. Energy Information Administration revealed nearly half of U.S. ethanol production capacity was offline by early April.
Crude oil saw record lows as travel and corresponding fuel consumption dramatically declined under shelter-in-place orders.
Data from the U.S. Energy Information Administration revealed nearly half of all U.S. ethanol production capacity was offline by early April.
Corn prices are also influenced by the USDA prospective plantings report, which said farmers intended to plant 97 million acres of corn this spring.
But since COVID-19 has wrecked the corn and ethanol market, agricultural experts are encouraging farmers to plant fewer corn acres.
Updated analysis by AFBF shows crop and livestock prices falling to levels that threaten the livelihoods of many U.S. farmers and ranchers. Shuttered schools, universities, restaurants and cafeterias are no longer buying milk, meat, fruits, vegetables and other food, causing a downward spiral in crop and livestock prices.
“The resilience of farmers and ranchers has been nothing short of stunning, but we must not take for granted their ability to hold on with prices spiraling, taking all hope of breaking even with them,” said AFBF President Zippy Duvall. “I stand by my assurance that our food supply remains strong, but America will have fewer farms and ranches supplying it unless USDA acts quickly to deliver aid and our economy is released from the grips of this pandemic soon.”
Farmers and ranchers across the state are concerned about getting enough laborers amid global travel restrictions and the temporary closing of consulates, who typically must conduct face-to-face interviews with H-2A applicants.
But the U.S. State Department recently announced it was committed to processing H-2A program applications by expanding an interview waiver to include new applicants, as well as returning workers whose visas had expired in the last 48 months, according to AFBF Congressional Relations Director Allison Crittenden.
“This is important for agriculture, because it ensures that farmers and ranchers will have access to that critically important workforce. We are at a time when planting is getting started, some regions of the country are already harvesting, and this means that we will have access to our H-2A workforce pretty similar to how we would in a normal year,” she said.
In addition to the interview waiver by the State Department, the Department of Homeland Security, with the support of USDA, enacted a temporary final rule to ensure farmers and ranchers could access the temporary labor needed to grow and harvest food.
Under this temporary final rule, an H-2A petitioner with a valid temporary labor certification who is concerned that workers will be unable to enter the country due to travel restrictions can start employing certain foreign workers who are currently in H-2A status in the United States immediately after United States Citizenship and Immigration Services receives the H-2A petition, but not before the employment start date listed on the petition.
Rural communities are also feeling the impacts of the global pandemic.
Lack of broadband internet access has long been a problem for rural America, but the issue has gained a spotlight during the COVID-19 pandemic. Distance learning, work-from-home roles and telemedicine all require dependable, high-speed internet access.
The Federal Communications Commission benchmark for high-speed internet is at least 25 megabits per second (Mbps) for downloads and 3 Mbps for uploads.
Research shows about 69 percent of rural Texans can access high-speed internet. But a 2019 USDA report, A Case for Rural Broadband, showed that 25 percent of Texas’ nearly 250,000 farms have no internet access at all.
And another 25 percent of households have only one choice for broadband service.
Another report by the Classroom Connectivity Initiative noted about 275,000 rural Texas schoolchildren needed more bandwidth for digital learning, especially with schools closing for the year.
This leaves many rural Texans without a signal when it comes to working and learning remotely.
And telemedicine lags in rural communities, too, in areas that are already feeling the sting of closing hospitals and lack of healthcare providers.
According to the Texas Department of Agriculture, 75 percent of Texas counties are federally designated as health professional shortage areas and/or medically underserved areas.
Sixty-four of Texas’ 254 counties do not have a hospital, and 25 counties do not have primary care physicians.
State and federal guidance forced many rural healthcare facilities to temporarily suspend non-emergency services, which typically fund the bulk of rural hospital budgets. The lack of income is straining already-tight budgets, some to the breaking point.
COVID-19 is devastating every sector of agriculture and creating new challenges for rural Texas.
But while the current economic situation is dire, as TFB President Russell Boening noted during a recent tele-town hall event, there will be an after.
“There are a lot of positives out there that we don’t need to forget about. We have a lot of things that have happened in the past six months or a year, some trade deals that have gotten done, and I don’t think we need to forget about that,” Boening said. “There will be opportunities after this is over.”