The COVID-19 outbreak has had profound impacts on everyday life and caused great concern about what lies ahead. The farm and food sectors have already been strongly affected and there is much more to come.
Already we have seen restaurants close, panic buying at grocery stores and large changes in commodity prices. Farmers and businesses are worried about their ability to obtain inputs, retain workers, and sell their products. Consumers are worried about their ability to get the food they want and need at a reasonable price.
In the six weeks from Feb. 4 to March 17, cattle futures prices declined by 20 percent. The corresponding decline in corn futures prices was 11 percent, and soybean futures prices fell by 8 percent. Other factors played a role in those price declines, but the COVID-19 outbreak was certainly one of the most important reasons that prices fell for the three commodities that together account for most of Missouri farm cash receipts.
The outbreak has weakened consumer confidence and has resulted in widespread concerns that the U.S. and world economies will grow more slowly or fall into recession. When consumers are worried about the economy, they are less likely to eat out or prepare expensive foods at home. That has a particularly large impact on demand for beef, which is often consumed away from home and which is more expensive than other protein foods.
Corn and soybean prices are affected in several ways as well. Reduced demand for meat and dairy products eventually translates into less demand for corn and soybean meal for livestock feed rations. If people drive less, there will be less demand for fuel, meaning less use of corn and soybean oil in ethanol and biodiesel plants.
There are a few factors that might help moderate some of the negative impacts on farm income. Lower oil prices mean lower fuel costs for farmers. Lower interest rates reduce the cost of borrowing. Some government programs increase payments to farmers when prices fall. Still, it seems likely that net farm income in 2020 will prove to be significantly lower than previously projected.
Others in the food supply chain are also strongly affected. Some plants may be forced to close down or may find it hard to obtain needed inputs. Large shifts in what people are able and willing to buy will cause major disruptions. Shifting from a world where people eat out frequently to one where most or all meals are consumed at home requires a massive reorientation in what food items are produced and where they are delivered.
While the impact on farm-level commodity prices has been strongly negative, these supply chain disruptions could increase the cost of getting food to final consumers, in spite of lower prices for farm commodities and fuel. There could also be severe challenges in providing food to people who face special difficulties -- people self-quarantining at home, children who used to get lunches at school and people who lose their jobs.
The COVID-19 outbreak has been and will be a test of how well our food system can respond to a crisis. How the system responds will be critical to the well-being of people around the world.
Pat Westhoff is director of the Food and Agricultural Policy Research Institute at the University of Missouri and a professor of agricultural and applied economics. The opinions expressed here are his own and do not reflect official positions or endorsements of the University of Missouri.
