Almost all agricultural commodity prices have been adversely affected by the COVID-19 response. The impact has been immediate on hog, beef, poultry, nursery and dairy farm revenue. Cattle prices declined rapidly in mid-March reducing profit opportunities for producers. Corn prices decreased sharply as demand declined mirrored a substantial drop in ethanol production. Cotton prices plummeted and are projected to decrease further due to the reduction of spending on clothing. Nursery losses have been huge because the response has occurred during the peak 10-week sales period. Direct sales and farmers market sales have been severely impacted.
COVID-19 has been the dominant factor in agricultural commodity markets for the past three months (January-April). Since January 21, the first case of COVID-19 in the U.S., average cash prices in Tennessee for corn, cotton, soybeans, and wheat have declined 6.8-25.9%. According to Dr. S. Aaron Smith, Associate Professor of the Department of Agricultural and Resource Economics, University of Tennessee, if prices do not recover and the declines, are realized on a full year of production (assuming a 5-year average of Tennessee production for each commodity) the decline in farm revenue, for corn, cotton, soybeans, and wheat commodities, would be $205.7 million.
Livestock and dairy producers are limited in price recovery time. Declines in milk prices and dumped dairy production and have been realized and revenue is not recoverable. Production losses for livestock and dairy producers are largely unknown, however the price declines have been dramatic (7.3% to 45.7%). The loss in farm level cattle and hog revenues if reductions are applied to a full year of production are estimated at $115.3 million and $32.8 million.
The nursery and floriculture sector, which represents one-third of the value of all specialty crops, is also experiencing serious economic market disruption. Sixty to 80 percent of the industry’s annual sales occur during the 10-week window stretching from mid-March to Memorial Day. The response period could not have come at a worse time for the industry. Early estimates predict the nursery and floriculture (national figures) live plant crop sales losses directly attributable to COVID-19 may exceed $400 million, jeopardizing the very survival of many family farms, and the well-being of some of the industry’s 275,000 full and part time employees.
Since the onset of the coronavirus farm prices across the board prices are down.
▪ 41% drop in lean hogs.
▪ 26% drop in cotton prices.
▪ 39% drop in poultry (whole bird equivalent)
▪ 21% drop in feeder cattle prices.
▪ 15% drop in corn prices.
▪ 8% drop in wheat prices
▪ 6% drop in soybean prices.
In terms of value of Tennessee production, the above commodities represent a loss of producer cash/or potential cash incomes (because it has not been realized yet) for 2020 of about $370 million. None of these estimates include the impacts on the manufacturing and processing sector and the economic multipliers impacts that will translate through the economy.
Farmers who have utilized grain storage to spread marketing risk are in a difficult predicament. They can’t afford to sell the crop at the current depressed prices, but the longer it is stored the higher the storage fees. Eventually new crops will need the storage.
As for commodity prices, the drop occurred during the crop insurance price determination period for key row crops. So, all the revenue guarantees for Tennessee crop insurance products will be depressed because the price determination period is much lower than it was in early January when the market was more normal.
Labor Issues:
Finding adequate labor has been a persistent problem even before the COVID-19 pandemic. Many “often invisible” people are needed to get food from the farm to the table.
Employee health concerns related to COVID-19 has exasperated the availability of agriculture workers, particularly for specialty crop production. These individuals are vulnerable to this virus. If the workers become sick and are quarantined the supply system will clog. We have plenty of food to feed everybody, but it takes people to get it there.
Processing Challenges:
The U.S. has the most reliable, efficient and resourceful supply chain in the world, and it has always worked well. From the production of food and fiber at the farm until purchased by consumers, the supply chain works like clockwork in our “on-demand” world. Plenty of food and fiber is being produced. However, pressing challenges have resulted due to the abrupt change resulting from the “safer at home” orders brought on by COVID-19. Consumer eating habits changed overnight to grocery stores, rather than restaurants. In the month of March grocery stores saw a 27 percent increase year-over- year, while the food service and drinking sector saw 25 percent decrease year-over-year (March 2019 vs March 2020). Those in the supply chain, while doing all they can to keep employees safe and healthy, are frantically working to adjust processing, packaging and logistics to the instantaneous shift. At the farm, producers are faced with the harsh reality of perishable and market ready commodities unable to enter a backed-up supply chain. The total losses are still undetermined but significant.
Shifting from a restaurant and wholesale focus to a grocery focus for dairy, meats and specialty crop has been exceptionally difficult. Processing and packaging for restaurants, hotels and schools, is different than grocery stores. Milk, cheese and meats processed at large volumes have had nowhere to go, causing dairy producers to be forced into dumping milk. Livestock and specialty crop producers are experiencing similar logistical and supply chain problems.
Compounding the challenges nationally, livestock processors are being forced to reduce processing line speeds, cut work hours and some have closed as more workers contract COVID-19. The production lines are not configured for social distancing although some are inserting plexiglass dividers between workers. Pork, beef and poultry processors are all being impacted by slowdowns or loss of major facilities.
Producers fear a shut down or buying reductions will force them to make tough decisions.
On the forest industry side, Domtar Corporation has temporarily idled the operations of its Kingsport, Tennessee mill, along with a mill in Arkansas for three months in response to the negative impact on communication paper demand driven by the COVID-19 pandemic. Offices, businesses and schools represent a large part of the market. The temporary shutdown will reduce Domtar’s uncoated freesheet paper production capacity by approximately 144,000 short tons over the three months’ period. As a result, Domtar is laying off approximately 304 employees at the Kingsport mill.
The Resolute papermill in Calhoun manufactures toilet and tissue paper so the market is holding up right now. The Packaging Corp. of America (PCA) mill in Counce and the Hood Container mill in New Johnsonville make components for cardboard boxes and at this point those mills are running steady.
Disconnect:
Despite what some may think, there is not a shortage on the supply side of the food and fiber system. Yet retail outlets have dealt with significant shortages due to a disruption in consumer purchasing options.
Significant price increases for meat, eggs, corn, soybeans and milk have occurred at the stores yet prices have gone the opposite direction on the farms. For example, farmers are being told by the processors to dump milk despite a high demand in grocery stores.
A significant portion of dairy products are typically sold to schools and restaurants. Until the supply chain can be reconfigured to process for stores, producers are left holding the milk; which is perishable. This example for dairy can be applied to many other segments of the Agriculture and Food sector.
Trade:
We are a net exporter of agricultural products. In dollar terms, more food is exported than imported. A lot of our exports go to countries that have also been hit hard by the coronavirus; China, Japan, and South Korea. If they go into a recession, their demand for our products is going to fall, which will leave more food on our domestic market.
Most sawmills in Tennessee are still operating but with a cautious eye to the coronavirus’s impact on the housing market and the trade situation. Prior to COVID-19, domestic markets for hardwood sawtimber had been soft for several years with mills reliant on export markets to remain in business. The recent Chinese tariff situation restricted the best export market for Tennessee sawmills, making it difficult to stay in business. Just prior to the COVID-19 situation, domestic markets were making a slight rebound and the Phase I agreement with China was initiating a reopening of the Chinese market. COVID-19 has placed these market developments on hold.
Major importing countries of Tennessee’s forestry products totaled $70.7 million with the top five major markets consisting of China, Canada, Mexico, Vietnam, and Italy. China is the big player. The four other countries combined do not equal the value of trade with China. The anticipated effects of the Chinese Trade deal are not having an impact at this point. Some are predicting an impact may not be seen until fall.
Credit Availability:
Access to credit for farm operators continues to be available. However, loan requests have increased, special payment adjustments are occurring as well as some loan restructuring.
Tennessee’s farmers owe $3.8 billion to lenders during a time of significant financial stress. Although lenders are operating with skeleton crews and maintaining social distancing guidelines for the health of their employees and customers, lenders continue to work to ensure farmers have the funds needed to operate their businesses and to plant the 2020 crop. In addition, lenders are working to assist those who are having difficulty making payments due to income shortages caused by the COVID-19 pandemic. The reduced income has significantly impacted Tennessee agricultural producer’s ability to repay their loans and provide for the sustainability of their operations.
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