COVID-19 Pandemic Causing a Downward Spiral in Arizona's Crop and Livestock Prices

COVID-19 Pandemic Causing a Downward Spiral in Arizona's Crop and Livestock Prices

 

Updated analysis by the American Farm Bureau Federation shows crop and livestock prices falling to levels that threaten the livelihoods of many Arizona and U.S. farmers and ranchers. Shuttered schools, universities, restaurants, bars and cafeterias are no longer buying milk, meat, fruits, vegetables and other food, causing a downward spiral in crop and livestock prices.

Futures prices for nearly all the major crops have dropped by double-digit percentages. Pushed down by a 40% plunge in ethanol prices, corn prices have fallen 15%.  Soybean prices are down 10%, while the price for cotton, which is heavily dependent on foreign manufacturing capacity, sank nearly 30%. Buoyed by demand in the U.S. and China, wheat prices have declined only 3%.

“Arizona’s farmers and ranchers have been adopting new technologies and practices for over a century in order to be sustainable and prepared to provide an abundance of affordable and safe food in such a crisis,” said Arizona Farm Bureau (AZFB) President Stefanie Smallhouse.  “The supply is certainly not a problem for the consumer right now, but the demand behaviors have shifted to the extent that it’s wreaking havoc on normal supply chain operations and commodity prices for the producer.”

On the livestock front, since the beginning of the year, both beef and pork futures prices have declined more than 30%. Milk futures prices have also fallen sharply, with the price for milk used to make cheese down 28% and the price for milk used to make nonfat dry milk falling by 34%.

“The resilience of farmers and ranchers has been nothing short of stunning, but we must not take for granted their ability to hold on with prices spiraling, taking all hope of breaking even with them,” said American Farm Bureau Federation (AFBF) President Zippy Duvall. “I stand by my assurance that our food supply remains strong, but America will have fewer farms and ranches supplying it unless USDA acts quickly to deliver aid and our economy is released from the grips of this pandemic soon.”

Dr. John Newton, AFBF chief economist, said, “The drop in demand is pushing the prices farmers would get paid for their crops to lows that may make it very difficult for them to justify putting another crop in the ground this spring. While the whole country is optimistic there is an end in sight, the question of when the economy will be healthy again is fueling further market uncertainty.”

“It’s worth noting that these prices are in no way tied to what shoppers pay in the grocery store. There are a lot of hands through which these commodities pass from the farm to the fork, so a drop in prices paid to farmers very rarely, if ever, translates into lower consumer prices immediately,” Newton explained.

Some in the retail industry call this “sticky” pricing: While the food commodity might drop dramatically in the open market, it takes a bit for that lower price to have sticking power in the grocery store.

Indeed, AFBF President Smallhouse highlights how intricate our food system is in America. “The food system is incredibly complex. For example, while a very small number of farm-to-plate growers might be seeing a spike in demand and price, they face problems getting the product to the consumer. Ranchers who sell beef direct have very limited options to deal with a sudden increase in demand when local packing houses are few and the supply was based upon much different consumer behaviors a month ago. Much of what we grow is perishable and you can’t just shut the supply valve off. Dairy cows are milked every day, leafy greens and produce are picked and delivered to market within a matter of hours while one pound of beef takes two years to produce.”

Smallhouse highlights how these are the timelines Arizona farmers and ranchers operate within, American farmers throughout the country. “If consumers have drastically shifted their eating habits away from what we know and expect, we can neither shut off the supply of milk or suddenly increase direct boxed beef.” 

The pain is being felt in all agriculture commodities. “Those farmers growing crops which are not perishable like cotton or other commodities which can be stored for longer periods of time like small grains, nuts and frozen meat product are also feeling the strain through drastically lower commodity prices,” explained Smallhouse.  “Farmers were already facing record losses before the COVID-19 pandemic hit, and so this is quite a punch in the gut for those who were depending upon the China trade deal to kick in back in February and uninterrupted trade with Canada and Mexico for products such as dairy and beef.”

 

Beyond Commodity Prices, Labor and Supply Chains Continues to Challenge Agriculture

“Dairy and produce are particularly laborious products to get to market and we are worried about our already insufficient labor supply becoming even more strained given the changes in processing immigrant labor visas in Mexico,” added Smallhouse. “We have needed a viable agriculture worker visa program for decades and this crisis is exasperating that issue. The State Department has provided some temporary fixes to address worker movement across the border, but at this point our system is very fragile and cannot withstand impacts to what little labor we have now.”

With what’s going on in the dairy industry due to the COVID-19 pandemic it’s worth noting milk production per cow has steadily increased due to nutrition, genetics and operating efficiencies so supply is more than secure, however; the overall number of licensed dairies in the U.S. has declined by over 50% since 2003. Last year saw the largest decline in U.S. dairies in 15 years. In Arizona we lost 10 dairies in 2019.

When the shift in demand from food services (think restaurants) changed so quickly and so completely, some supply chain experts explained the dramatic change using a boat analogy. Unlike a speed boat, the dairy industry with large food service orders is like a freighter, you can’t turn it on a dime. So, while there is plenty of milk, moving away from food services to retail is causing logistical bottlenecks in everything from storage to packaging.

“Volatility and uncertainties are not new to the farming and ranching community and we will undoubtedly survive because that is what we do,” concluded Smallhouse.  “We keep working no matter what. We just need to stay healthy and our ingrained optimism and faith will carry us through this crisis as it always does.”


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