April 2020 - Current market situation of US farming and COVID 19

In most of the cases Ag business in USA means business as usual. In some cases farmers are looking forward good gains, and in other cases, the lesser, losses. US market is open for business and probably the best market for advanced agtech solutions. Of course, as usual, there will be ups and downs, like every year.

How will food supply and demand change as a result of the Corona virus? Consumers in uncertain economic times will adjust their purchasing habits, even for essentials like food. This according to UC Davis Economist Dr. Daniel Sumner, who says different agricultural products will be effected in different ways.

“You do have to think about it commodity by commodity. Which ones are most sensitive to income. Which ones aren't," noted Sumner in an AgInfo´s article written by Tim Hammerich.

Whether farmer´s produce corn, cows, wheat or hogs, they are facing dropping markets. Here’s a rundown of the weekly price movement for the week ending April 3:

• July corn was down 15¢

• July beans down 26¢

• Kansas City wheat down 14.5¢

• Minneapolis wheat down nearly 13¢

• Chicago wheat down nearly 22¢

• April Feeder Cattle: $13 a hundred weight

• April Hogs are down $18 a hundred weight

The only thing positive market this past week was energy. Crude oil was up $6 a barrel and unleaded gas was up slightly.

USDA released its Prospective Plantings report this week. The highlights for 2020 acres include:

• Corn: 97 million acres, up 7.29 million acres or 8% from 2019

• Soybeans: 83.5 million acres, up 10% over last year

• Wheat: 44.7 million acres, down 1% from 2019

• Cotton: 13.7 million acres, down less than 1% compared to last year

The oil´s price situation, as a consequence of the Arabian-Russian energy situation, and the huge reduction in demand as a result of COVID 19, has tremendous large impact for farmers that are growing corn (Corn for Ethanol that accounts for 40% of the US cron production). In spite of this situation, surprisingly, american farmers will be planting almost more than 10% than last year´s acreage, and planting will reach 180 million acres in Soy Bean and Corn. This will have an impact on price.

"The U.S. biofuel industry has asked the Trump administration for funds from the U.S. Department of Agriculture’s Commodity Credit Corporation to help it survive a demand slump triggered by the coronavirus outbreak, according to a letter seen by Reuters.

The funds could be used to offset a portion of the industry’s corn and soy bean purchases, or as direct assistance to companies to help them retain staff, according to the April 1 letter addressed to Agriculture Secretary Sonny Perdue." Reuters

Apart from energy, going back to food and COVID 19, the largest impact has to do with in which side of the distribution channel is the farmer selling to. If the farmer has contracts to sell to supermarkets, then they will be having a really good season in most crops, but if they are selling to the restaurant and hotel channel, they will suffer till these businesses open again. Shifting sales channels takes time, and it is not easy. 50% of food was consumed outside the house, and this market is mostly closed, but the home delivery services. 7 million people are expected to be laid off in the restaurant, hotel and leisure business. A big part of this market will shift towards home consumption, mostly coming from supermarkets and a small part from home delivery services, a market that will show a really big growth.Another farmers that will be in pain are those small farmers that sell in local farmer´s markets.

In general people will keep eating, and consuming. Farming is one of the strategic sectors and farming is open for business. Labor, another big concern will not be an issue. There will be more labor for farming than in normal circumstances.

Other interesting data when looking after the Ag business:

- After the trade war with China, China is buying again US products

- Investing in food commodities is a good shelter during hard times

- Orange juice concentrate is the commodity whose futures are best performing. Sales are up 40%

- Egg consumption and price are up

- Milk price is down

- Agtech investment accounted for $6.5 billion in 2019, according to AgFunder, adding up to a total of $30 billion from 2012.

- Agtech expenditure will grow, but farmers will need better in-field support from Agtech companies

Regarding federal relief support:

The legislation, given final passage by the House on Friday and quickly signed into law by Mr. Trump, allocates as much as $23.5 billion in assistance for farmers.

Parts of the industry are suffering immediate hits from the coronavirus outbreak, such as corn growers who have seen prices for ethanol plummet and mom-and-pop suppliers of farm markets that have closed in many cities.

But unlike industries such as airlines, hotels and automakers, which have largely or completely shut down, most farms are still operating. And sales of some products in the industry have surged as worried consumers stock up, generating shortages of meat, chicken, eggs and flour.

The law provides Mr. Perdue with $9.5 billion to support farmers, including livestock producers, suppliers of farm markets and producers of specialty crops, and $14 billion in borrowing authority to replenish the fund he used to make trade-related payments to farmers in the past two years. The department’s entire discretionary budget request for next year is about $23 billion.

The Agriculture Department will also receive an additional $25.1 billion for food aid programs for poor families from the stimulus bill.

As said in the beginning of this post, farming is open for business, and US represents a promising market in 2020 and 2021 for any good Agtech provider willing to service US farmers.