The market for agricultural commodities is particularly interesting because of the many different forces that impact pricing. Like many aspects of life, COVID-19 has played a major role in this market, and its impact may be felt well into the future.
Factors affecting commodities pricing
There are many local and national influences on commodity pricing that occur pretty consistently, despite any additional economic or global impacts (like the pandemic). Local factors such as weather events, pests and overhead costs can affect the physical state of your farm. National factors include things like the influence of the federal government or the cost of transport. Unfavorable governmental policies or taxes levied on farming can force prices to rise, and subsidies might cause prices to fall. Additionally, the cost of transporting goods fluctuates depending on how far the products are going or whether they need to be kept at a specific temperature during transport.
Global supply and demand and the futures market also impact commodities pricing. In fact, according to the USDA, changes in the GDP of developing countries directly correlate with commodities pricing in the United States, and the seasonality and consistently high demand for agricultural commodities make them susceptible to market volatility.
Prices of commodities during COVID-19
One obvious factor with a significant impact on prices right now is the coronavirus. At the onset of the pandemic, food supply chains were disrupted, causing prices to spike across the country. In April, farmers found themselves with an oversupply of food that typically would have gone to commercial entities (which were unable to sell). At the same time, supermarkets couldn’t be stocked quickly enough, but that still didn’t prevent a temporary rise in prices. The timing was terrible for consumers, many of whom were out of a job and on unemployment.
Over the summer and into the fall, prices normalized. As we learned more about COVID-19, supply chains came back, once again allowing for the stable movement of goods. At this point, the market has mostly returned to what it was pre-pandemic, providing some comfort to farmers and consumers.
However, the outlook for 2021 is not so good. According to Reuters, there could be a “market shock” in 2021 related to the overstocking of agricultural commodities during the early part of the pandemic. Some prices have already started to fall, like that of corn. There are signs this could be the onset of a market downturn as a result of the pandemic, which may reduce the price of corn further and affect other commodities as well.
Throughout the COVID-19 pandemic, farmers have faced many unprecedented challenges, including fluctuations in commodities pricing, wasted/lost goods and market uncertainty. At Halderman Real Estate and Farm Management, we seek to understand how our clients are affected and where we can be most helpful. We are a resource of information and support for you, and you can rely on our expertise and years of experience. To learn more about how we can help you, contact Halderman today.
USDA. "Factors Contributing to Changes in Agricultural Commodity Prices and Trade for the United States and the World." Economic Research Report Number 272, January 2020. Economic Research Service. Getachew Nigatu, Flavius Badau, Ralph Seeley, and James Hansen.
EveryCRSReport.com, University of North Texas Libraries Government Documents Department. https://www.everycrsreport.com/reports/RL33204.html#TOC1_1. December 20, 2005 – January 6, 2006