The financial toll COVID-19 is taking on Indiana’s farmers goes well beyond the consumer spending slowdown they would see in an ordinary recession.
Purdue University agricultural economists said American food processing and distribution have compounded the usual problems and provided good reason for including agriculture among economic sectors requiring serious federal support.
That is important to northeast Indiana’s economy, because data from the 2017 agricultural census showed Business Weekly’s 12-county reading area in the state with more than 12,700 farms and 281,600 acres in farmland.
“The University of Missouri’s Food and Agricultural Policy’s Research Institute just last week came out with new estimates about net farm income, and it’s $20 billion lower than it was just a month earlier,” Jim Mintert, director of Purdue’s Center for Commercial Agriculture, said during an April 20 webinar.
Jayson Lusk, who heads Purdue’s department of agricultural economics, said in the webinar fresh meat prices rose in mid-March on a sales surge supermarkets saw after states started restricting restaurants to carry-out business.
However, the 30% increase in supermarket sales of fresh meat was not enough to offset the impact of plummeting restaurant business, he said, because 54% of U.S. food spending is for meals away from home.
Credit and debit card spending data show supermarket spending “up a little bit, but they’re kind of hovering there between positive and negative, so it probably depends upon which part of the supermarket we’re looking at,” Lusk said.
“Areas of the economy that have really picked up a lot of spending, not surprising, are food delivery, meal kits are up high, online grocery has increased quite a lot and gaming,” he said.
“But of course, a lot of things have taken a hit. Fast food is down probably 30% or so, and on the very far side, airlines, movie theaters, are basically at 100% reduction almost on the spending in those categories.”
Last month when shoppers were stocking up on groceries and other supplies, beef sales doubled, and chicken did almost as well. But that shopping surge has largely subsided.
“We may be stocking up a little more when we go to each grocery visit, but I think the truth of the matter is there’s just a lot less economic activity across the board,” Lusk said.
“We’ve moved a little bit beyond that stocking up phase and you can see prices really starting to come back down, and we’re entering into something that’s hopefully not a new normal, but at least an equilibrium for the next couple of weeks until we can get food away from home changed,” he said.
With consumers finding many items out of stock for weeks on end, “there’s been a lot of talk about whether there’s enough food to go around,” he said. “Prices, I think, are a signal of scarcity, so it’s one thing I kind of watch out for to see if demand is really outpacing supply.”
Lately, wholesale fresh meat prices have indicated the supply was in good shape. As of April 20, beef, pork, and chicken were selling for less than last year.
Eggs have been an exception. Lusk said their prices at many retailers have only come down a little after tripling as a result of logistic issues and regulations that do not allow eggs to move easily from one market to another.
“A lot of times the eggs are going into restaurants on big pallets,” he said. “We think about the little carton of a dozen, but they’re in big pallets and there was this regulatory issue that once it was labeled to go into a restaurant, it was packaged that one way and they couldn’t turn around and resell it (in smaller packaging).
“Even if you were allowed to do it, you still need more cartons to move those eggs, and you don’t just have a lot of empty cartons sitting around unless you need them.”
Food processing and logistics issues also led to surprising imagery early this month of farmers dumping milk they could not sell while consumers scoured empty supermarket dairy cases for milk.
“A lot of milk goes to school cafeterias. How are those children drinking that milk? It’s in the little, tiny cartons, which is not the gallon jugs that we’re accustomed to buying when we go to the grocery store,” Lusk said.
When plants set up their dairy processing equipment to package a vast amount of milk in those tiny cartons, “you can’t just flip a switch and have them crank out a gallon jug of milk,” he said.
Similarly, food processing equipment set up to produce 50-pound blocks of cheese for restaurants cannot easily covert that production, he said, to half-pound packages of shredded cheese.
“Of course, they can invest the million dollars to switch over to a gallon jug line but is it worth doing it if this is only going to last two more weeks,” Lusk asked.
“In some cases, even if you do want to make the switch, it’s going to take several months, perhaps, to make that investment and get it operational,” he said.
To help them get through the impact of COVID-19, the U.S. Department of Agriculture plans to provide $16 billion in direct payments to farmers and ranchers with $9.6 billion of that targeted toward the livestock sector, $3.9 billion toward the row crop sector, $2.1 billion for specialty crop producers and $500 million for other crops.
The total USDA package is between $19 billion or $19.5 billion with the portion that does not go to farmers directly going for purchases of food in an effort to prop up prices for agricultural commodities.
USDA officials have indicated farmers will be compensated for 85% of their estimated price losses that occurred from the start of this year through April 15, and then 30% of the estimated price losses starting on April 15 and continuing for two subsequent quarters, Mintert said in the webinar.
However, because math for the compensation amounts does not work out with current commodity price data, at least for row crops, “it’s going to be one or two options,” he said.
“It’s either going to be more money appropriated, or perhaps the compensation levels might be less than initially specified.”
Indiana is a major producer of corn and soybeans, and Michael Langemeier, the CCA’s associate director, said it will take more than $3.9 billion to cover U.S. row crop losses at levels the USDA has indicated.