April 24, 2020 at 5:17 p.m.
Dismal outlook
U.S. agriculture producers are facing difficult economic conditions in the face of coronavirus
Dismal outlook
The coronavirus pandemic has been hard on virtually all sectors of the American economy.
Agriculture is no different.
Even the most optimistic outlooks on the 2020 growing season are less than promising.
“It’s rough,” said Ben Brown, assistant professor of professional practice in agricultural risk management at Ohio State University. “It’s pretty dismal.”
Ag producers have already taken a hard hit.
They had been down for years since hitting a peak near $8 per bushel in 2012 but were still generally hovering between $3.50 and $4.50. As recently as February, they were around $3.75 but the bottom has fallen out since the pandemic hit the United States.
Corn prices in the area this week were at or below $3, dipping as low as $2.84 Tuesday at Sunrise in St. Anthony, Ohio. Prices at POET Biorefining in Portland and Central States Enterprises in Montpelier were also below $3.
“That’s the lowest I’ve seen in my lifetime,” said Brown, 27. “And I think we’ve got room to go even further down.
“So, it’s a pretty dismal picture on the corn side.”
“Coronavirus has just exacerbated the corn issue,” he added. “We were looking at overproduction, decreasing demand to start the year. That’s just continued, especially with the ethanol picture.”
(Chris Hurt, Purdue University’s agricultural economist, is typically the lead source for the annual agriculture outlook and harvest stories but he remains on extended medical leave. Brown, who oversees OSU’s farm management program in the department of agricultural, environmental and development economics, counts Hurt as one of his mentors.)
Soybeans are fairing a bit better, but have also taken a hit. Prices that were averaging about $9.45 a bushel in January have dipped by more than a dollar. The lowest in the area this week was at Central States Enterprises at $8.09.
A variety of factors are driving down corn prices, Brown said, including the lack of travel. Typically low oil prices would be a boon for the ethanol industry because cheaper fuel generally means more traveling. But with stay-at-home orders in effect, that’s not the case.
“That’s really put a hurt on our ethanol industry,” he said.
About 50% of the ethanol industry is shut down, resulting in less demand for corn.
When prices are low, that can sometimes lead to additional purchasing of corn for livestock feed. But, Brown noted, meatpacking plants have slowed down in part because of a lack of demand with restaurants closed to dine-in traffic and in part to help keep employees safe from coronavirus. So that outlet has not come through either.
“Now that there’s a bottleneck at the packer level, that’s backing up these animals,” said Brown. “We’re not being as aggressive on the feed side as we would otherwise.”
The one bright spot has been that Japan, Mexico and Saudi Arabia have been strong purchasers as they take advantage of the lower prices.
“But there is concern about how much can they buy,” Brown said. “They’re only going to buy as much as they can store, as much as they need. Even though U.S. corn is cheap, they only need so much of it.”
Soybeans, which were a struggle last year in the midst of the U.S. trade dispute with China, were expected to bounce back.
On the theory that an announced trade deal with China would come through, many ag producers held back some of their 2019 crop in hopes of making better deals when prices increased. That has not happened.
“There was a general consensus that this trade deal was going to get straightened out and provide exports that were going to provide support to corn and soybean prices,” Brown said. “And that just never materialized.
“Now they’re sitting on it and prices have gone the other way in a big hurry.”
The one bright spot for soybeans with exports virtually non-existent has been domestic demand. “Crush margins” — accounting for soybeans that are crushed for oil or meal — have been at record highs. The March report of 81 million bushels was 7 million bushels higher than the previous record set in January. Four months of the 2019 marketing year have set new records.
How might ag producers respond to the dismal outlooks for the country’s two major crops?
They could choose not to plant, relying on crop insurance as some were forced to last year because of the extremely wet spring. But a reduction in the guaranteed price for both crops and other factors make that a less attractive option for 2020.
They could also shift from corn to soybeans, which have taken less of a hit. They are also less of an economic risk because they cost less per acre to plant.
However, there are down sides in terms of agronomics. Farmers, who typically rotate their crops each year, likely want to plant corn after their soybeans and cover crops have introduced additional nitrogen into the soil. And planting soybeans for three consecutive years could result in problems in terms of pests and weeds.
“There’s some competing interests,” said Brown. “Economically, soybeans is a lot more favorable. There’s less risk with soybeans, plus it’s penciling out better right now. But then there’s some agronomic considerations that are going to push it more to corn.”
While the economic picture for corn and soybeans is not good, there is a wide range of possible outcomes.
For corn, for instance, Brown said he could see prices dropping to as low as $2.20 per bushel if fuel consumption stays down and there are good crops elsewhere around the world. On the other hand, if the crop is short in South America, if China buys more corn and if farmers reduce acreage, they could climb to near $4.
In between those extremes, though, corn prices for the 2020 crop are being estimated at $3.35 per bushel
Soybeans, meanwhile, are expected to come in at about $8.40 per bushel for the 2020 crop.
Overall, that puts soybeans in a better position by about $15 to $20 per acre, Brown said.
“That’s the impact of coronavirus that we’ve seen for our new crop 2020,” he added. “The picture wasn’t good for either (corn or soybeans), and it’s just become worse.
“It’s definitely not a pretty picture. Our estimates are for most folks who are paying some kind of land costs … we’re expecting that it’s going to take either a 10% to 15% increase in yields or another round of government assistance beyond what this Coronavirus Aid, Relief and Economic Security (CARES) Act is going to provide to make money in 2020.”
Agriculture is no different.
Even the most optimistic outlooks on the 2020 growing season are less than promising.
“It’s rough,” said Ben Brown, assistant professor of professional practice in agricultural risk management at Ohio State University. “It’s pretty dismal.”
Ag producers have already taken a hard hit.
They had been down for years since hitting a peak near $8 per bushel in 2012 but were still generally hovering between $3.50 and $4.50. As recently as February, they were around $3.75 but the bottom has fallen out since the pandemic hit the United States.
Corn prices in the area this week were at or below $3, dipping as low as $2.84 Tuesday at Sunrise in St. Anthony, Ohio. Prices at POET Biorefining in Portland and Central States Enterprises in Montpelier were also below $3.
“That’s the lowest I’ve seen in my lifetime,” said Brown, 27. “And I think we’ve got room to go even further down.
“So, it’s a pretty dismal picture on the corn side.”
“Coronavirus has just exacerbated the corn issue,” he added. “We were looking at overproduction, decreasing demand to start the year. That’s just continued, especially with the ethanol picture.”
(Chris Hurt, Purdue University’s agricultural economist, is typically the lead source for the annual agriculture outlook and harvest stories but he remains on extended medical leave. Brown, who oversees OSU’s farm management program in the department of agricultural, environmental and development economics, counts Hurt as one of his mentors.)
Soybeans are fairing a bit better, but have also taken a hit. Prices that were averaging about $9.45 a bushel in January have dipped by more than a dollar. The lowest in the area this week was at Central States Enterprises at $8.09.
A variety of factors are driving down corn prices, Brown said, including the lack of travel. Typically low oil prices would be a boon for the ethanol industry because cheaper fuel generally means more traveling. But with stay-at-home orders in effect, that’s not the case.
“That’s really put a hurt on our ethanol industry,” he said.
About 50% of the ethanol industry is shut down, resulting in less demand for corn.
When prices are low, that can sometimes lead to additional purchasing of corn for livestock feed. But, Brown noted, meatpacking plants have slowed down in part because of a lack of demand with restaurants closed to dine-in traffic and in part to help keep employees safe from coronavirus. So that outlet has not come through either.
“Now that there’s a bottleneck at the packer level, that’s backing up these animals,” said Brown. “We’re not being as aggressive on the feed side as we would otherwise.”
The one bright spot has been that Japan, Mexico and Saudi Arabia have been strong purchasers as they take advantage of the lower prices.
“But there is concern about how much can they buy,” Brown said. “They’re only going to buy as much as they can store, as much as they need. Even though U.S. corn is cheap, they only need so much of it.”
Soybeans, which were a struggle last year in the midst of the U.S. trade dispute with China, were expected to bounce back.
On the theory that an announced trade deal with China would come through, many ag producers held back some of their 2019 crop in hopes of making better deals when prices increased. That has not happened.
“There was a general consensus that this trade deal was going to get straightened out and provide exports that were going to provide support to corn and soybean prices,” Brown said. “And that just never materialized.
“Now they’re sitting on it and prices have gone the other way in a big hurry.”
The one bright spot for soybeans with exports virtually non-existent has been domestic demand. “Crush margins” — accounting for soybeans that are crushed for oil or meal — have been at record highs. The March report of 81 million bushels was 7 million bushels higher than the previous record set in January. Four months of the 2019 marketing year have set new records.
How might ag producers respond to the dismal outlooks for the country’s two major crops?
They could choose not to plant, relying on crop insurance as some were forced to last year because of the extremely wet spring. But a reduction in the guaranteed price for both crops and other factors make that a less attractive option for 2020.
They could also shift from corn to soybeans, which have taken less of a hit. They are also less of an economic risk because they cost less per acre to plant.
However, there are down sides in terms of agronomics. Farmers, who typically rotate their crops each year, likely want to plant corn after their soybeans and cover crops have introduced additional nitrogen into the soil. And planting soybeans for three consecutive years could result in problems in terms of pests and weeds.
“There’s some competing interests,” said Brown. “Economically, soybeans is a lot more favorable. There’s less risk with soybeans, plus it’s penciling out better right now. But then there’s some agronomic considerations that are going to push it more to corn.”
While the economic picture for corn and soybeans is not good, there is a wide range of possible outcomes.
For corn, for instance, Brown said he could see prices dropping to as low as $2.20 per bushel if fuel consumption stays down and there are good crops elsewhere around the world. On the other hand, if the crop is short in South America, if China buys more corn and if farmers reduce acreage, they could climb to near $4.
In between those extremes, though, corn prices for the 2020 crop are being estimated at $3.35 per bushel
Soybeans, meanwhile, are expected to come in at about $8.40 per bushel for the 2020 crop.
Overall, that puts soybeans in a better position by about $15 to $20 per acre, Brown said.
“That’s the impact of coronavirus that we’ve seen for our new crop 2020,” he added. “The picture wasn’t good for either (corn or soybeans), and it’s just become worse.
“It’s definitely not a pretty picture. Our estimates are for most folks who are paying some kind of land costs … we’re expecting that it’s going to take either a 10% to 15% increase in yields or another round of government assistance beyond what this Coronavirus Aid, Relief and Economic Security (CARES) Act is going to provide to make money in 2020.”
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