Commodity price estimates tumble as market shock persists

(Illinois Farm Bureau file photo)

Commodity prices could feel the effects of the COVID-19 pandemic for months to come rather than stage a quick recovery.

Ag economists Todd Hubbs, University of Illinois, and Lee Schulz, Iowa State University, discussed the turbulent situation this month during a webinar hosted by the U of I farmdoc team.

Prices the past two months plummeted 37.4% for hogs, 29% for cattle, 22.8% for corn, 15.2% for beans and 7.8% for soy meal, Hubbs noted.

“We know these markets are very volatile due to the impact of the supply situation and uncertain demand,” Schulz said. “This has shaken the livestock market significantly. Producers are having to make difficult decisions.”

Those decisions include possibly depopulating some herds and flocks, which could negatively impact feed demand. U.S. pork packing capacity totals about 500,000 head per day, but recent shutdowns due to COVID-19 cut capacity by up to 40%, or about 200,000 market-ready hogs per day, Schulz noted.

“COVID-19 is having a detrimental effect on our ability to operate packing plants,” Schulz said. “There’s no simple solution to work through the backlog of hogs.”

An executive order signed by President Donald Trump late last month provided resources to the packing industry and some plants reopened the first week of May, but not at full capacity.

“We did get some good news with a couple plants back online (as of May 4),” Mark Gebhards, Illinois Farm Bureau executive director of Governmental Affairs and Commodities, told the RFD Radio Network. “We still know we’re nowhere near 100% capacity across the country. Those challenges unfortunately may yield to the fact we may have to depopulate some herds.”

IFB continues working with state and federal agencies to help farmers receive technical and financial assistance for market losses and to possibly depopulate herds and properly dispose of carcasses. It also seeks opportunities for vacant facilities around the state that could be used to temporarily hold livestock.

Why are there so many hogs? Prior to the pandemic and subsequent market shock, farmers expanded herds with the expectation of increased demand. The inventory of hogs and pigs in the U.S. on March 1 totaled 77.62 million head, up 4%.

“We have sufficient livestock. We do not have a shortage,” Schulz said. “What the challenge is, is converting livestock into consumable products.

“It’s not typical of a capacity issue,” he continued. “The situation here is focused on our labor force.”

Schulz estimates farmers could lose $16 per head of hogs this year (including minus-$34 per head in April and May) and $128 per head for cattle.

Meanwhile, the U of I farmdoc team recently adjusted crop price estimates for the 2020 marketing year from pre-COVID-19 prices of $8.80 per bushel for soybeans and $3.70 for corn down to just $8.20 and $3.20, respectively, since the pandemic hit the U.S.

And a demand spike could be difficult to achieve any time soon. U.S. unemployment claims recently topped 30 million in just six weeks while the S&P 500 remained off its Feb. 19 peak by 30%.

Elsewhere, Brazil’s soybean crop could total near a record 4.55 billion bushels at time when its currency, the real, depreciated by almost 37% since the first of the year, which gives Brazilian soybeans a major edge in international markets, Hubbs noted.

“Brazil exported approximately 425 million bushels (of soybeans) in March and is set to expand on that total in April with potential exports coming in near 530 million bushels,” Hubbs said. “A setback in trade relations between the U.S. and China may add more bushels to an already impressive total of Brazilian exports.”