Editor’s Note: Jeff Caldwell is content marketing manager at Lessing-Flynn, a marketing and advertising agency based in Des Moines, US. Previously, he was editor of Successful Farming and the High Plains Journal. The views expressed in this article are personal.
“Normal” life as we know it has been severely disrupted as the novel coronavirus Covid-19 sweeps across the planet. Families are taking precautions like sheltering-in-place and quarantining to slow the spread of the virus and enable health care workers to provide treatment for the infected. To varying degrees, this is impacting the workforce of every industry on the planet.
Agriculture has not been immune to the sweeping societal changes of the last two months as everyone prepares for and adjusts to the virus. While the wide-open spaces in agricultural areas were seen early on as a potentially limiting factor for the virus’ spread, concerns sprouted about the sustainability of the ag supply chain amid limits placed on person-to-person contact from the farm gate to the grocery shelf, especially with the news that clusters of cases have been discovered in less-populated areas. And, while protections from restrictive government measures due to its “essential” status have enabled many in the industry to continue working, temporary panic-shopping among consumers, the closure of foodservice venues such as restaurants, and temporary disruptions in food processing and distribution have led to unprecedented pressures on the entire food and agriculture system.
In many ways, it’s not the food supply chain itself but the logistics of distribution that has been most adversely affected in the food and ag sector working through the pandemic, according to Clay Detlefsen, senior vice president of regulatory and environmental affairs for the National Milk Producers Federation and the private-sector chair of the US Department of Homeland Security Food and Agricultural Sector Coordinating Council.
“The whole system’s been turned on its head a little bit, but we have plenty of food here. Folks are concerned that if they start running out of personal protective equipment (PPE) and sanitation supplies on hand, we would ultimately be forced into shutting down some food processing plants because if you can’t supply protective equipment to workers need, you have to shut down,” Detlefsen said, adding PPE will be a fact of life in the food processing sector for the foreseeable future. “It hasn’t happened much yet, but we are still concerned about it and don’t see the light at the end of the tunnel until June or July.”
Under today's unique circumstances, AgFunder is re-opening Fund III for a limited time to enable investors to join our mission and invest alongside us as LPs in a second close. Learn more here.
Consumer behavior dynamics
“We saw hoarding behavior across the country. Some of it was temporary while some will persist longer, especially for some types of products. We are seeing bigger problems in large urban centers than in smaller urban and rural areas, but it has affected everybody,” says University of Illinois Agricultural Economist Nick Paulson. “That type of hoarding and buying behavior is a self-fulfilling problem. We ask that people resist being part of that problem.”
Tracing the supply chain backward from the consumer level, the virus has caused definite disruptions in some sectors. The general trend of production will continue, but as Covid-19 pressures things like interpersonal contact, operational changes will disrupt not just what reaches the consumer, but how that happens. Analysts expect some disruptions to the supply chain, but quick action and vigilance will generally sustain the overall food supply despite those disruptions.
“The first major concern is keeping supply chains functioning, primarily relating to meat, egg and dairy. We have to keep them moving. Whenever we’re dealing with biological units — hogs, cattle, dairy — we have to keep them fed and keep supplies moving to those animals. Anything that impedes that isn’t a good thing. In agriculture, as we move toward more draconian measures to control the virus, we can expect systems to be strained,” adds University of Illinois Agricultural Economist Gary Schnitkey. “Our first concerns are around workers, transportation, keeping those systems running. How will we respond when processing plants have infected workers? Given we’re looking at slowing spread rather than stopping…how we deal with [infections among processing plant workers] will be a concern and we will see some spiky erratic prices at supply points as people make changes.”
April & May critical for future meat supply
Scott Foote works at the junction of these components of the supply chain every day. As manager of Hoxie Feedyard in Hoxie, Kansas, Foote works in both the feed sector to support the 100,000-plus cattle in his lot and the processing side to supply fed animals to regional processors from one of four feeding facilities his family owns and manages in western Kansas. So, he works at the convergence of logistical factors that many say represent potential painpoints in the supply chain if the Covid-19 situation continues to exert pressure on society for an extended period of time.
“Most of our workers are still working, but we’re changing how we’re doing things. It’s nice to stay open if we can, and packing plants are still running. They’ll try to keep running and maintain worker safety, and if a plant does have to shut down, other plants can hopefully pick up the slack,” Foote says. “We’re still early in this thing. If the economy changes, people aren’t going out to eat, there are fewer jobs and people are buying less beef, it will change not just rural America, but America.”
Foote also relies on distillers dried grains and solubles (DDGS) from a regional ethanol plant — seven semi-truck loads per day — to complete his feed ration. But with ethanol operations slowing down or stopping altogether — partially driven by Covid-19 but more so by the downward slide in crude oil prices due to a glut in transportation fuel not used by airlines — he may be forced to look elsewhere to sustain a consistent supply of the key feed ingredient.
Confirmation of Covid-19 cases among workers inside beef and pork processing plants in Colorado, Nebraska, Iowa and South Dakota has prompted temporary work stoppages at those facilities in order to enable employee isolation and sanitation to prevent further virus spread. Though it’s causing temporary disruptions in meat supply reaching distributors and retailers, the overall supply chain is large and requires more lengthy disruptions to cause widespread protein shortages, industry-watchers say. Aggregate supply shortages may not be apparent at the consumer meat case for weeks after a major supply disruption, making the months of April and May a critical timeframe in determining the longer-term effects of the virus.
“It takes many months to slow down the meat production cycle. Labor problems add to the problem with high employee absenteeism. Many employees either had coronavirus, or more often feared getting it, leading them to stay home,” according to Arlan Suderman, chief commodities economist for INTL FCStone Financial Inc. “Some plants had temporary closures, while others slowed chain speed. This tends to back up the supply, increasing it as animal weights increase.”
The grain market picture
The ethanol situation weighs on the potential for long-term impacts for crop producers in places like the Midwestern US where the biofuel represents a major corn demand component for farmers. Ethanol is a major component of overall corn demand in the US, and a slowdown in production — caused by declining demand from Covid-19 and the sharply lower crude oil market — means less corn demand and lower prices for farmers.
“An informal industry survey we conducted reflected expectations that we would see gas consumption drop 54% in April, 41% in May, 24% in June, 13% in July and 4% to 5% the rest of the year. But the range of estimates varied widely, reflecting the many unknowns still before us,” Suderman says. “That’s lost gasoline consumption that will not see ethanol blended into it at the 10% mandated level. Ethanol exports are also slowing as similar patterns evolve overseas among our customers.”
While it’s declining for ethanol right now, demand for US grain remains strong on the global market, and that’s strengthening as trading partners shift buying patterns because of Covid-19. Phytosanitary measures are ramping up at many ports to ensure shipped grain is free of the virus; that could cause some delays at ports around the world, but for the most part, global grain movement has yet to be disrupted on a broad scale.
“It’s very important to continue to ensure to the world that we are open for business and will remain so here in the US. We’re seeing reports from ports around the world that they are also operational. There may be some slowdowns in checking crews and vessels for Covid-19 infections, as well as additional measures at some ports,” says US Grains Council President and CEO Ryan LeGrand. “Chinese vessels are getting extra scrutiny now. Around the world, everything is operating pretty much normally when it comes to shipment and receipt of grain.”
In the last week of March 2020, US corn inspections — the most accurate measure of the amount of grain being sold on the export market — were at 11-month highs, LeGrand says. Continued sustained protective and sanitary measures will be critical to maintaining global grain supply chains, be it for corn, soybeans or small grains.
“There’s certainty and confidence in the US grain export system, and for that reason, buyers in North Africa — typically buyers of South American corn — are looking more to the US for origin because they’re confident in our supplies,” LeGrand adds. “They’re worried about Argentina, where they shut down the Rosario port hub for a short time recently. The fear remains that some ports could shut down operations, but that fear is not as strong in the US.”
Farm-level and land implications
Global grain export demand and ethanol are two major factors impacting the future for grain farmers in regions like the US Corn Belt. Federal monetary policy also plays a role when it comes to grain farmers’ ability to manage overall finances in a time when market volatility is expected to remain high for some time. The farmland market is one watched closely as a bellwether for overall farm financial viability, and in the grain sector, producers are years into a period of largely bearish markets. The Covid-19 situation and low crude oil prices adds more downward pressure at the farm level, and the land market will remain one to watch for direction on how the farm sector is faring amidst the general angst about the virus and all its corollary effects on society in general.
“The price of corn has held in there pretty strong so far. Before Covid-19 and the recent drop in crude oil prices, farmers still generally retained their buying power. If that is the case, they’ll continue to buy land next to them, and land is historically a safe investment,” says Steve Bruere, president of Peoples Company, a farm real estate brokerage and management company in West Des Moines, Iowa. “We’re in year-seven in this downturn in commodity prices. If you take this ethanol and Covid-19 deal on top of that and run farmers out of their ability to buy, that’s going to be bearish for land values.”
Bruere points to the ethanol predicament and recent movements in the US Federal Reserve 10-year Treasury Note as conflicting variables for the future direction of farmland prices and values. The net effect — given global grain demand stays at relatively steady levels without major disruptions caused by Covid-10 — will be a likely steady market.
“Do our monetary policy and low interest rates inflate land values, or does crude oil send the market lower? I think the crude oil situation is likely more short-term than the monetary policy issue with the 10-year Treasury Note,” Bruere says. “I think the market will remain steady, potentially going slightly since farmland is a safe haven market.”
Agriculture’s role in creating post-Covid-19 solutions
Moving forward, other sectors of agriculture like poultry production will continue to face volatile market prices because of a combination of factors including supply chain disruptions. John Boney is an animal science professor at Pennsylvania State University and a specialist in the poultry industry that’s already felt impacts of the virus. Ingredients like the amino acid threonine are key components in broiler chicken feed rations, and because borders have closed to the import of some products, threonine could become in short supply given much of the American supply is imported from China.
While these variables have industry members closely monitoring their supply chain, the poultry industry is no stranger to fighting viruses. Producers have battled avian influenza in recent years, and while it’s no comparison to the current Covid-19 situation, it’s forced industry stakeholders to develop tools — like a GPS mapping system in the state of Pennsylvania that helps producers keep healthy birds separated from farms and areas where viral infections have been confirmed — that could ultimately contribute to the effort to prevent Covid-19 from inflicting physiological damage through widespread infection.
“In the instance when there’s an avian influenza outbreak, we can use this mapping system to route trucks around an infected area so that we are not spreading this virus. There is infrastructure and plans in place to move goods efficiently in times of crisis,” Boney says. “I know avian influenza is dramatically different from Covid-19, but the idea is it’s still a virus and here in animal agriculture, we are well-suited to deal with situations like this.”
Broader rural health and safety efforts
Those types of tools are potentially just a small part of the equation in protecting human health when a virus like Covid-19 spreads. Though the vast majority of the nation’s agricultural land is sparsely populated compared to urban centers, human health concerns are just as great, even more so in areas where logistics and general care capacities are lacking. It has rural health providers on alert and making preparations for infections that could inflict magnified damage on the small towns supporting agriculture around the country.
“While health systems and providers struggle to contain the damage Covid-19 is causing in urban centers, rural health care providers are preparing for the inevitability of its arrival to small towns around the nation. Rural health care faces unique challenges with care logistics and overall demographics and we’re taking steps to ensure seamless care for our communities,” says Sarah Hancock, communications manager, Community HealthCare System of Northeast Kansas. “Securing the necessary personal protective equipment has been and will continue to be a huge challenge. We’ve been collecting those supplies through our normal supply channels and through county and regional partnerships. With increased nationwide need, the shortage is likely to have a large impact in rural America as the virus creeps out of urban areas.”
Ultimately, slowing and stopping the spread of Covid-19 and sustaining life and “normal” operations for agriculture producers and the communities on which they depend will require fresh, new thinking and a creative approach to how to best provide the necessary care.
“Our emergency preparedness is strong, and we continue to focus on tactics for handling medical surges, a potential outcome of Covid-19’s spread. We’ve modified spaces to expand our capacity and can do even more to accommodate for higher patient numbers,” Hancock adds. “Creativity in managing facilities and patient care and measured, positive communication will be key components of adequate response to Covid-19. We’re progressing well and efforts need to continue for the foreseeable future until the virus is under control. Relief will eventually come, but in the meantime, we will remain vigilant and go to every effort we can to slow and control the virus. Our rural communities depend on us.”