The unknowns and uncertainties regarding the ultimate economic impacts of the COVID-19 outbreak on Nebraska agriculture remain. Everyday effects reveal themselves. As such, Tidbits will continue to offer updates on the influences of the pandemic on Nebraska agriculture as they unfold.
- Consumer spending of their food dollars has changed dramatically. Prior to the outbreak, consumers expenditures on food purchases away from home exceeded expenditures for food prepared at home. With the pandemic, a dramatic, almost overnight, shift has occurred to purchases of food for home preparation. Figure 1 shows the dramatic drop in diners at restaurants in major U.S. cities. One observer commented grocery stores saw 3-4 weeks of retail demand crammed into 10 days. This shift in consumer purchases caught the food system unprepared and has upended supply chains, created logistical headaches, and caused many other snafus. For example, while retailers are limiting milk purchases in some regions, producers are dumping milk because the non-retail demand has plummeted. Also, meat packers have had to reconfigure operations and supply lines to meet the different protein needs of the retail sector verses the food service sector. The resulting shifts in prices, supply lines, contracts, and schedules are being keenly felt by Nebraska’s livestock sector.
Figure 1. Year-Over-Year Change in Seated Diners on Open Table
- The drop in the price of oil and decline in gasoline consumption have hit the state’s ethanol industry hard. The result has been the shutdown or idling of several plants. It has been reported four ethanol plants in Nebraska have shuttered, while several others are scaling back production, some facilities by as much as 50 percent. These developments impact corn producers who sell corn to these facilities, livestock producers who purchase byproducts, and jobs in rural communities.
- The local basis for corn, the difference between the nearby futures price on the Chicago Board of Trade and the local price, has plummeted. For example, the bid for corn in Columbus on February 28 was $3.64/bushel. Last Thursday, the bid was $3.00/bushel, or 64 cents less. Over the same period, the May futures contract declined from $3.68 ¼ to $3.32 per bushel, or 36 ¼ cents. This means the basis declined by 32 cents. Like many fluctuations in agriculture, the shrinkage of the basis is a double-edged sword—bad for corn farmers but good for the state’s livestock industry.
- In times of economic uncertainty, investors flock to safer assets. Currencies are no different. The global economic slowdown and uncertainty has led investors to flock to the U.S. dollar as a safe currency. As a result, the value of the dollar relative to other currencies has risen. Unfortunately for farmers and ranchers, increases the value of the dollar increases the price of U.S. agricultural goods overseas and makes U.S. products less competitive on a price basis.
Figure 2. Value of U.S. Dollar
Every day brings something new. Flexibility and a willingness to adjust and adapt will be a premium for producers to successfully manage their operations through this event.