COVID-19 Effect on Agriculture

It is very difficult to project how the virus will effect agriculture into the future, however there will be impacts during the 2020 growing season. My goal is not to alarm people and/or clients but want to put some of this into context. First of all people and animals still need to eat and the world still needs affordable energy. US agriculture provides some of the best food, feed, and energy in the world. However, there are several factors and things going on that will likely negatively impact commodity prices moving forward. Travel bans and historically low oil prices could effect both corn and soybean prices in the near term. Travel bans and reduced travel will reduce the amount of ethanol being used across the country. Further, with historically low oil prices ethanol is not as competitive as oil and ethanol margins are very poor. This in turn will reduce the demand for US corn as an alternative fuel source. A huge part of the US market for soybeans comes from exports. With travel bans in place to export partner countries demand for soybeans will also be reduced. Further, although the Phase 1 trade deal with China has been signed and they have committed to large agricultural purchases the commitment is market based and South American soybeans are cheaper than US soybeans at this point. I don’t expect China to come through with large soybean purchases if US soybeans are more expensive than South American soybeans. Farmers will still farm and expectations are for near record corn production in 2020 and large soybean production is 2020. This will put additional downward pressure on commodity prices. The combination of slower demand and increased potential corn and soybean production could have a negative effect on commodity prices for quite some time. Although the stock market has moved into bear territory, the farmland market has been relatively stable. Farmland may be viewed as a safe haven investment and demand for quality farmland remains very strong. However, this will be a balancing act between the view of farmland being a safe haven investment and the potential for declining farmland returns in the near term. There are a lot of moving parts to this equation and things could change for the better or worse very quickly. I will try and keep these posts updated with what is going on and my views of how agriculture could be impacted. If anyone has any questions or concerns I am happy to talk or message anytime.