Farmers advised to be patient during possible ‘flash recession’

(Illinois Farm Bureau file photo)

It’s probably a good thing planting activity lies just around the corner to keep farmers’ minds off the marketing aspect of the business.

With live cattle prices down 30% and corn down 15% for the year due to the recent market collapse and economic shutdown caused by the coronavirus pandemic, University of Illinois economists advise farmers to remain patient pricing their products as the situation could get worse before it gets better.

“It’s unprecedented as far as I know in modern history engaging in social distancing on a such a widescale basis,” Scott Irwin, Laurence J. Norton Chair of Agricultural Marketing at the U of I, said during a recent webinar. “We’re trying to isolate from each other to slow down the rate of infection so we don’t overwhelm our medical system.

“It’s caused a massive reset in the financial and commodity markets,” he noted. “Just a month ago, the stock market was at a record high. Since then, it’s gone down about 30%.”

Irwin didn’t forecast a recession, two quarters in a row of negative gross domestic product, but he believes a major economic crash looms, at least short term.

“It’s conceivable there could be a contraction of economic activity the second quarter of the dimension something like the Great Depression, but then end up recovering (the second half of the year),” he said. “In agriculture, we’ve experienced flash droughts. This may be a very severe flash recession in the second quarter.”

Todd Hubbs, U of I ag economist, recommends farmers remain patient through all the economic turbulence and lock in commodity sales on future price rallies.

The pandemic could eventually dampen crop movement in South America, and potentially close ports, which could benefit U.S. commodity markets.

“If you’re looking to sell old-crop corn, stay in wait-and-see mode to see if we can pull out of this in May or June, although, I’m not expecting a miracle,” Hubbs said. “I think China will show up this year (to buy U.S. commodities). I don’t think it’s all doom and gloom. Hold your marketings a bit to see how this plays out.”

The recent shift in crop prices and high input costs could reduce farmers’ willingness to dramatically increase corn acres as some predicted earlier this year.

USDA releases its highly anticipated prospective plantings report next Tuesday (March 31).

But, Gary Schnitkey, U of I professor and Soybean Industry Chair of Agricultural Strategy, doesn’t foresee a major acreage shift at this point.

“We may see some acreage shifts, but it’s still too early to say what it may look like (depending on crop price trends and weather this spring),” he said.

As for getting supplies in place for planting, the ag sector continues to position products as most ag jobs, including processing and transportation, are considered essential during the current lockdown.

“It would appear most fertilizer, seed and chemicals are in place,” Schnitkey said. “We need to maintain transportation (to complete deliveries).”