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COVID-19 brings supply chain in focus

Article cover photo
The paper products aisle in a Hy-Vee grocery store in Johnston is picked clean from residents stocking up on home supplies. Experts say it’s too soon to know if COVID-19 will trigger a MFP payment. (Photo: Joseph L. Murphy/ Iowa Soybean Association)

By Bethany Baratta, ISA senior writer

Every sector has been impacted by the spread of the novel coronavirus, called COVID-19. Markets continue to stumble, erasing previous gains. Restaurants and schools are shifting the way it does business. Social distancing is, at least for now, the norm.

In Iowa, 45 individuals have tested positive. In the United States, more than 15,200 cases have been reported.

Just one month ago, the stock market hit an all-time high. Today, it’s down nearly 30% since the beginning of the year. Cattle and oil markets have also fallen, though not tied directly to the COVID-19 pandemic.

“We’re all trying to analyze and game out where we go from here,” said Scott Irwin, the Laurence J. Norton Chair of Agricultural Marketing for the University of Illinois’ College of Agricultural, Consumer and Environmental Sciences. He was one of five economists speaking today as part of a webinar regarding the impact of OCVID-19 on the agricultural sector.

Irwin said the United States could be in a situation that doesn’t meet the technology definition of an economic recession—two quarters of negative GDP growth. Instead, it could be classified as a contraction of the economy.

“This might be a very severe flash recession that we experience in the second quarter of 2020, but recover before another quarter,” he said.

Consumer response

U.S. consumers have responded to the threat of the pandemic inching closer to their neighborhoods by stocking up on food products and supplies. In some cases, it’s been extreme, said Nick Paulson, associate professor and director of graduate programs at the University of Illinois’ College of Agricultural, Consumer and Environmental Sciences.

“There’s plenty of evidence throughout the country of hoarding behaviors,” Paulson said.

He said consumers ought to think about enough groceries and supplies for 2 weeks; there isn’t a need to considerably shift buying patterns, he said.

Iowa Governor Kim Reynolds has ordered restaurants to suspend dine-in options until at least March 31; restaurants are shifting orders to carryout, delivery or curbside pickup instead. This shift has impacted the restaurant business. Iowa Restaurant Association President Jessica Dunker projects severe losses to the industry.

“As many as 80,000 people in our industry (may) move to the unemployment roll," she told the Des Moines Register.

Supply chain and labor concerns

In response to COVID-19, some distilleries have shifted from making whiskeys and rum to making hand sanitizer. Some restaurants and kitchens at universities throughout the United States have donated food products to local shelters or are selling those groceries to customers.

“Making that big of a shift is going to be some work in transportation and food industries,” said Gary Schnitkey, soybean industry chair in agricultural strategy for University of Illinois’ College of Agricultural, Consumer and Environmental Sciences.

He expects overall food demand to remain steady. But what happens if there is a confirmed case of COVID-19 in an ag processing facility which limits the number of employees working?

“Our first major concern is keeping supply chains functioning,” Schnitkey said.

Meat, dairy, egg and produce industries must be able move their supplies, he said. The same goes for biological units: feed, veterinary supplies, etc.

“There’s likely to be spiky, erratic prices at some supply points,” Schnitkey said.

Maintaining a strong workforce and transportation systems are vital to business continuity in the ag sector, Schnitkey said.

For now, the crop sector, considering the upcoming planting season, remains relatively unaffected. Keeping the recommendations in mind regarding proper handwashing, social distancing and restricted travel will help flatten the curve and limit further spread. Keeping these things in mind also means a healthy workforce come time for spring planting, he said.

“There are time pressures going on as we’re moving through this period,” Schnitkey said. “Be careful with that.”

Grain outlook

It’s too soon to know if COVID-19 will trigger a Market Facilitation Program (MFP) payment, said Jonathan Coppess, director of the Gardner Agriculture Policy Program at the University of Illinois’ College of Agricultural, Consumer and Environmental Sciences.

He said the U.S. Department of Agriculture (USDA) is focused on the food supply chain, and in alleviating localized food shortages.

Todd Hubbs, clinical assistant professor of agricultural commodity markets for the University of Illinois’ College of Agricultural, Consumer and Environmental Sciences, doesn’t see COVID-19 as a complete market disruptor for the soybean and corn markets. That’s if, he said. If the United States can keep its supply chain intact.

He said news that the COVID-19 outbreak in China is slowing is positive, even for the grain export outlook. It’s questionable whether China will meet its phase 1 trade obligations in agricultural purchases from the United States, but he’s hopeful.

“We may get back to some sort of business a little bit quicker than many of the commentators are now speculating,” he said. “That would be my preference, and hopefully that’s the case.”

He said it’s too early for U.S. farmers to think about making acreage shifts as a result of COVID-19 or phase 1 purchases which may or may not come to fruition.

“It’s a little bit early,” he said. “Let’s see how this moves in the next few weeks.”

Strength in U.S. soybean and corn exports also depends on the crop progress in Brazil, which has a cost advantage over the United States. If the Saudi Arabia/Russia price war over oil continues and ethanol has a premium over gas prices, it could continue to erode corn demand, he said. However, if weather turns adverse in Brazil during key corn-growing months (April-May), the United States could benefit.

The U.S. soybean industry could also benefit if sales and shipments fall through from South America, Hubbs said.

If the supply chain remains whole and demand strengthens, it’s good news for U.S. farmers, he said.

“I don’t think it’s all gloom and doom if we can get through this (COVID-19) in a timely manner,” he said. “Hold your marketing for a little bit and see how this plays out.”

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