10 Factors Affecting Farm Commodity Markets
It is a desperate time for global markets as already sluggish economies take a gut punch from the unprecedented impact of COVID-19.
U.S. agriculture is not immune. Farmers suffering from deep farm income losses over the past five years now face additional pressure from virus-related restaurant closings, limited consumer purchases and uncertain labor and input availability.
Farm Press reached out to Bobby Coats, Arkansas Department of Agriculture economist and a long-time contributor to Delta Farm Press, for his analysis of the challenges facing U.S. agriculture.
Here are 10 factors Coats says bear watching as the world reels from this pandemic.
1. We see a dangerous deceleration in global growth. COVID-19 is aggravating global debt, credit, and monetary crises, and other factors are limiting U.S. and global economic stability, markets, regional dynamics and imbalances in global supply chains.
2. U.S. and global momentum. The fiscal policy response ($2.3-plus trillion) and new supportive options will emerge. Trade policy depends on near-term virus spread, global political headwinds, and limits the near-term implementation of the Phase 1 trade agreement with China as well as other trade negotiations.
3. Grain and cotton fundamentals. Rice, soybean, corn, wheat and cotton global fundamentals are weighing heavily on global commodity markets in general and the grain and cotton markets specifically as global production continues to outstrip demand. China continues to at least imply they hold a major portion of global stocks.
4. 2020 prospective planting. The March 31, 2020, USDA NASS Prospective Planting report for rice, grains, and cotton, was mostly expected, but lessened the hope for a better price outlook for the remainder of the current marketing period and the 2020-21 marketing period. That assumes no external shocks to global supply.
“For Arkansas, long-grain rice acreage was up 25% to 1.19 million acres,” Coats adds. “All things being equal, without new demand, this is bearish for rice prices. Also, soybean acreage was up 9% to 2.9 million acres; corn acreage was up 4% to 800,000 acres; and cotton acreage was down 5% to 590,000 acres.
“For the U.S., prospective planting will weigh on market prices for the remainder of the current marketing period and the 2020-21 market period, all things equal. The current U.S. planting expectations are as follows:
• Corn planted acreage up 8% from 2019 to 97 million acres
• Soybean acreage up 10% to 83.5 million acres
• Wheat acreage down 1% to 44.7 million acres
• Cotton (all) acreage down less than 1% to 13.7 million acres
• Long-grain rice acreage up 18% to 2.1 million acres
• Medium-grain rice acreage down 3% to 706,000 acres
5. Food security and global weather patterns. Global weather patterns are changing, moving from global warming to global cooling, so the question becomes: which major global agricultural production regions will be impacted significantly by adverse weather in 2020? Last year, weather significantly affected the U.S. row crop planting season. Will that hold true this year or will weather affect some other major global production region — South America, parts of Asia, and/or northern Europe?
Rising weather, disease, and economic uncertainty implies some level of stock building by highly populated countries and should receive elevated consideration.
6. Supply chains. The coronavirus has radically decelerated global economic activity and elevated uncertainty about the viability of the global supply chains. For now, I will say that includes the global agricultural supply chain.
7. Will the U.S. engage in food stockpiling? We already do to some extent through farm legislation, which provides producers some level of price protection, especially with Market Facilitation Program Payments. Consequently, the U.S. consumer has an abundance of key staples. Let me point out, I understand true profitability seems a memory and consolidation is alive and flourishing. No one should assume that global disease pressures will not intensify over the next several years, which would imply additional food security measures may, or likely will, need to be taken.
8. Will additional 2020 farm support emerge? The quick answer is yes. But that would encourage expanded planting. Take this to heart, and I am preaching to the choir, many or most farmers are not covering production costs, even with additional assistance, so plan accordingly.
9. Labor concerns. I am always concerned about labor, but especially in the coronavirus environment. Given the political challenges of fighting this virus, however, it is probably not appropriate to comment further. I will say that I have every expectation that food security concerns will open doors related to labor issues, though complexity of delivery will have its challenges.
10. What about farm production supplies, equipment, etc.? Presently, the global economy is in a dangerous slowdown or a dangerous and unpredictable deflationary period, which will continue to weigh on supplies, equipment, etc., where competition exists.
No business as usual
As the virus continues to infect larger swaths of the country, and as millions of U.S. citizens and millions more around the globe shelter in place, farmers and ranchers, health professionals, food distributors and other “essential service” providers go about their jobs. But business as usual ceases to exist.
Companies shut their doors, some sending employees home to work remotely, others furloughing until conditions improve. No one knows when that will happen, and patience may be the only choice.
“The U.S. and global economies are simply in uncharted economic territory for modern times,” Coats says. “The U.S. agricultural economy is experiencing a high level of economic stress, consolidation, and market price uncertainty.”
Source: Ron Smith, Delta Farm Press