April 13, 2020
COVID-19 represents an unprecedented situation both for the economy and the agricultural sector. The University of Missouri’s Food and Agricultural Policy Research Institute (FAPRI) updated its 2020 baseline projections, indicating a 5-10% reduction in crop prices in the 2020/21 marketing year and 8-12% reductions in livestock sector prices in 2020, relative to the Phase 1 baseline released in January.
“The eventual impact of COVID-19 on the economy depends critically on the length and intensity of the pandemic,” the report noted. The key macroeconomic assumptions made in the analysis represent a sharp and significant decline in the national economy in 2020, with the sharpest decline occurring in the second quarter. Consumer expenditures are being negatively impacted by the increase in unemployment and restrictions on economic activity, but the CARES Act and other relief legislation may moderate the decline in consumer spending.
FAPRI’s baseline assumed that real consumer expenditures would increase by 2.8% in 2020, based on forecasts available at that time from IHS Markit. In the scenario, FAPRI said it assumes that real consumer expenditures will instead decline in 2020 by 2.2% relative to 2019, a difference of 5% from the baseline. In 2021, FAPRI assumes that the economy recovers, so that real consumer expenditures are just 1% below baseline levels, and by 2021, real consumer expenditures and other variables are back at baseline levels.
Consumer expenditures on food and beverages tend to be less responsive to income shocks and so are reduced by 2.5% relative to the baseline for 2020. Consumer expenditures are being negatively impacted by the increase in unemployment and restrictions on economic activity, but the CARES Act and other relief legislation may moderate the decline in consumer spending.
Livestock, poultry and dairy producer prices all fall sharply in 2020 in response to weaker consumer demand caused by reduced disposable income. For 5-area steers, the 2019/20 baseline of $122.10 is down to $108.06. Barrows and gilts are forecast down from $53.15 to $48.33/cwt. Wholesale broilers are down from $89.25 in 2019/20 to $81.33, and all milk is estimated at $19.46 for 2019/20 to $17.75 for 2020/21.
The calendar year price impact from COVID-19 (change from Phase 1 baseline) resulted in an 11.5% decline for fed cattle, and another 2.1% in 2021. Hogs saw a 9.1% decline this year, and another 1% decline in 2021. Broilers were forecast down 7.8% and another 1.2% in 2021. Milk is down 8.8% in 2020 and 0.5% in 2021. FAPRI said livestock changes moderate in 2021 under the assumed economic rebound.
Supply chain impacts have been varied and, in some cases, severe, FAPRI said. “The production, processing, transportation and retailing of food have all been affected in ways that have seriously disrupted normal practices and increased costs. Even if it proves temporary, shifting from a world where a significant share of food is consumed in restaurants to one where far more food is consumed at home may require changes in food processing and distribution that may come with additional costs. These supply chain issues are not explicitly considered in this preliminary analysis, other than to assume a modest increase in the average margin between wholesale and retail beef and pork prices in 2020,” FAPRI noted.
For crop prices, FAPRI projects corn prices at $3.35/bu. (down from the baseline of $3.70/bu.), soybeans at $8.27/bu. (down from $8.85/bu.), wheat at $4.84/bu. (down from $4.58) and cotton at 55.5 cents/lb (down from the baseline of 61.7 cents/lb.). Because prices for all crops are impacted, acreage shifts for the 2020/21 marketing year are modest. With its bigger relative price change, corn area sees a modest decline. Cotton area holds, despite the large price decline, as government payments offset lost market revenue.
For calendar year impact of prices as a change from Phase 1 baseline, corn is projected down 8.2% for the 2019/20 marketing year and another 9.4% for the 2020/21 marketing year. Soybeans are down 4.4% for the 2019/20 marketing year, and another 6.5% for 2020/21. Wheat saw a modest drop in 2019/20 at 0.9% and 5.3% for the 2020/21 marketing year. Lastly, cotton saw a 6.1% drop for 2019/20 and another 10.1% drop.
“Price impacts for crops tend to be larger in 2020/21 than in 2019/20, even though economic recovery is assumed to begin later this year. Most of 2020 crop production was not priced before the onset of the COVID-19 crisis,” FAPRI noted.
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