COVID-19 Q&A

The following questions and answers about COVID-19 and how they may impact agriculture will be updated as new information becomes available and additional questions will be added weekly. Please check back frequently for the latest information.

 

COVID-19
  1. What is COVID-19?
  2. How long will COVID-19 last?

 

Resources

 

The Food Supply Chain
  1. Why did closing dine-in services at restaurants affect the food supply chain?
  2. What are some of the challenges in the supply chain?

 

Macroeconomic Drivers

 

Meat Processing

 

COVID-19


What is COVID-19?
COVID-19 is a respiratory disease caused by a novel (new) coronavirus. The virus has been named “SARS-CoV-2” and the disease it causes has been named “coronavirus disease 2019 (COVID-19).”

The most common symptoms include fever, cough, and shortness of breath and may appear 2-14 days after exposure. There is currently no vaccine for COVID-19 and it will probably be 12-18 months before one is widely available.

To help protect from contacting the virus, follow these steps:
– Wash your hands often with soap and water for at least 20 seconds
– Avoid touching your eyes, nose, or mouth with unwashed hands
– Avoid close contact with people who are sick
– Avoid close contact with others
– Cover your mouth and nose when you cough or sneeze
– Clean and disinfect objects and surfaces
– Maintain social distancing stay at home as much as possible. When going out, maintain safe distance (at least 6’) from others.

The first confirmed case in the U.S. occurred on January 20, 2020 in Washington state. Find the latest numbers of cases and deaths on the Centers for Disease Control’s (CDC) U.S. COVID-19 cases database.

 

 

How long will COVID-19 last?

No one really knows. With no current vaccine or immunity to COVID-19 to help limit the spread, it is very difficult to say when this pandemic will subside. This does not mean we cannot do things to control it. The measures put in place by governmental leaders are meant to control the impacts on health care systems so they are not overwhelmed by cases. Many simulations and models have been used to try to show how these mitigation efforts could impact the spread. One of those models (see figure below) shows three possible outcomes based on different measures used to help mitigate the spread of the virus.

 

Source: How will country-based mitigation measures influence the course of the COVID-19 epidemic?, March 9, 2020, The Lancet.

 

The red line scenario includes case isolation only. The green line scenario, dubbed flattening the curve, includes social distancing throughout the epidemic. The blue line scenario includes more effective social distancing in place for a limited time only, followed by a resurgence of the virus when social distancing is halted. These models are intended to people understand why we may need to change our behaviors or restrict our movements and to give people a sense of the effect these measures can have.

Best case scenario – minimal new infections after July 2020, social distancing ends and US economy begins to recover in quarter 4 of 2020.

Moderately worse case scenario – new infections slow through July but as social distancing ends, there is a resurgence in the fall which lasts through June 2021. Social distancing is reintroduced in November 2020 and lasts through June 2021. The successful development of a vaccine ultimately ends COVID-19 in June 2021.

 


Resources

 

Are there any government programs designed to counter the economic impacts of COVID-19?

On March 27, 2020, the president signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law following the approval of both chambers of Congress. The Act is aimed at reducing the economic impact of COVID-19 and authorizes $2.1 trillion in aid to various sectors of the economy. This legislation builds on two previous bills passed by Congress aimed at COVID-19 assistance. The CARES Act includes the following provisions:

Cash Payments
All adults, with a social security number and income below $75,000 ($150,000 for a married couple) will receive a payment of $1,200/individual ($2,400 per couple) and $500 per child. As income rises, the payments will be phased out and individuals with income above $99,000 ($198,000 for couples) will not receive a payment. Income will be based on your 2019 federal income tax return or your 2018 income tax return if you have not filed 2019 yet.

Unemployment Compensation/Insurance
Provides expanded unemployment insurance benefits, including an additional $600/week for up to four months. It also includes benefits for those not usually eligible for unemployment, such as self-employed, independent contractors, and those with limited work history. Additionally, the federal government will extend unemployment benefits through December 31, 2020 after workers have run out of state unemployment benefits.

Non-cash Assistance/Relief for Individuals

  1. Coronavirus-related distributions and loans from 401(k) plans and other defined contribution retirement plans: In 2020, if you or a family member test positive for COVID-19 or suffer economic harm due to COVID-19, you may be allowed to take up to $100,000 out of your account balance or borrow from it.
  2. Waiving the 10% additional tax on early distributions from IRAs, 401(k) plans, and other defined contribution retirement plans: The 10% additional tax on pre-age 59½ distributions from IRAs, 401(k) plans and defined contribution plans does not apply for 2020 if you, your spouse or child tested positive for the coronavirus, or if you suffer economic harm because of the coronavirus.
  3. Waiving of required minimum distributions from IRAs, 401(k) plans, and other defined contribution plans.

Small Business Relief
  1. Employee retention tax credits are available to any employer whose business has been fully or partially closed due to a government order related to COVID-19 or has seen 50% or more drop in quarterly gross receipts compared to 2019. For businesses with less than 100 employees, wages and health insurance costs for all employees can be counted towards the credit. Businesses with more than 100 employees can only claim wages and/or health insurance for workers that are furloughed. The credit is limited to $10,000 per employee.
  2. Businesses with existing SBA Loans can be relieved of their loan payments (principal, interest, and fees) for the next 6 months.
  3. Paycheck Protection Program (PPP) will provide small businesses with zero-fee loans of up to $10 million to pay employees. These loans provide small business with the following:
    • – Forgive up to 8 weeks of average payroll and other costs if the business continues to pay their employees at their current levels.
    • – Defer principal and interest payments for up to a year and waive all fees.
The CARES Act included $349 billion for PPP. According to the SBA website they are no longer accepting new applications for loans or accepting new lenders due to reaching the limit of funds available.

For small businesses that apply for SBA Economic Injury Disaster Loans (EIDL), an advance of up to $10,000 will be provided within 3 days of applying for the loan. EIDLs are loans of up to $2 million that carry interest rates up to 3.75 percent for companies and up to 2.75 percent for nonprofits, as well as principal and interest deferment for up to 4 years. The loans may be used to pay for expenses that could have been met had the disaster not occurred, including payroll and other operating expenses. The advance does not have to be repaid, even if the grantee is denied the EIDL.

UPDATED MAY 4, 2020:
On May 4, 2020, Secretary of Agriculture Sony Perdue announced that the Small Business Administrations (SBA) Economic Injury Disaster Loan (EIDL) and EIDL Advance programs are now available to agricultural producers for the first time. As a result of the additional funding authorized by Congress through the Paycheck Protection Program and Healthcare Enhancement Act signed into law by President trump on April 24, 2020, the SBA portal, closed since April 15, will be open on a limited basis for agricultural businesses only to submit new applications. There is no need for agricultural businesses that have already submitted an application to reapply, their applications will be processed on a first-come, first-served basis.

 

Higher Education Assistance
  1. Student loan relief
  2. For student loan borrowers with federally backed student loans will be allowed to defer making payments for 6 months without interest or penalty.
  3. Interest accrual during this time is also waived, meaning loan balances will not increase.
  4. Assistance is provided to institutions of higher education to continue to pay work study students who are unable to work due to work-place closures.

 

Mortgage, Rent, and Utility Payment Assistance
  1. Borrowers with federally-backed mortgage loans may request forbearance on their mortgage. The forbearance may be issued for up to 60 days with four 30-day extensions possible as well.
  2. Owners of federally-subsidized properties with more than five units, or properties with a federally-backed mortgage loan may not evict or charge penalties or fees to a tenant who cannot pay rent for 120 days following this Act.
  3. Utility assistance is provided to low income families through the Low Income Housing Energy Assistance Program (LIHEAP). Low income folks who need assistance paying their energy bills should call the National Energy Assistance Referral (NEAR) toll-free at 1-866-674-6327 or visit https://liheapch.acf.hhs.gov/db/index.php.

 

Aid to States and Local Governments
Funds will be made available to states for necessary expenditures incurred in responding to the coronavirus outbreak — including building field hospitals and buying ventilators — as well as to offset the cost of other essential government services not budgeted for in the wake of the economic downturn. These funds will be made based on a state’s population, but every state will be guaranteed at least $1.25 billion. These funds can be applied to expenditures incurred between March 1, 2020 and December 31, 2020.

Aid to Healthcare Providers and Hospitals
  1. Free COVID-19 testing, covered completely by your health insurance provider.
  2. Any preventive service or vaccine related to COVID-19 must be covered at no cost within 15 days of receiving a rating of A or B from the United States Preventive Services Task Force or a recommendation from the Advisory Committee on Immunization Practices.
  3. Once a vaccine for COVID-19 is available, Medicare part B will cover the full cost of the vaccine (no cost-sharing).

Agriculture and Food Aid
  1. The CARES Act increases the borrowing authority of the Commodity Credit Corporation by $14 billion, effective in July 2020.
  2. An additional $9.5 billion is included to assist agricultural producers of specialty crops, livestock, dairy, and producers who support local food systems such as farmers markets, schools, and restaurants.
  3. The USDA ReConnect program will receive $100 million to ensure rural Americans have access to broadband.
  4. The ReConnect program offers federal finance and funding in the form of loans, grants, and loan/grant combinations to facilitate broadband deployment in areas of rural America that do not currently have access to broadband.
  5. The Emergency Food Assistance Program will provide $450 million to assist food banks with increased needs.
  6. The Supplemental Nutrition Assistance Program (SNAP) is allocated an additional $15.5 billion to cover the expected in increase in caseload.
  7. An additional $8.8 billion will be provided for the Child Nutrition Program.

 

Are there any government programs that can help me cover my labor costs?
  1. The CARES Act provides $350 billion to create the Payroll Protection Program. Under this program, administered by the Small Business Administration (SBA), zero-fee loans of up to $10 million to keep paying their employees. The loans are designed to:
    • – Forgive up to 8 weeks of average payroll and other costs if the business retains their employees at their current salary level
    • – Defer principle and interest for up to a year and waive all fees
  2. Eligible businesses include:
    • – Small businesses, non-profits, veterans organizations, and tribal businesses with no more than 500 employees, or the applicable size for the industry as provided by SBA if higher
    • – Sole-proprietor, independent contractor, or other self-employed individuals
    • – Businesses with more than one physical location that does not employee more than 500 employees per physical location
  3. For more information on how to apply for these loans, please consult the SBA at https://www.sba.gov/page/coronavirus-covid-19-small-business-guidance-loan-resources.

 

Is there likely to be another Market Facilitation Program (MFP) or some program like it?
The CARES Act includes $14 billion in additional borrowing authority for the Commodity Credit Corporation (CCC), the entity that disbursed the MFP payments. Additional payments to producers are very likely, but the rules may differ from past versions of MFP.

On April 17, 2020 USDA announced the Coronavirus Food Assistance Program (CFAP), a $19 billion program to assist farmers, ranchers, and consumers in response to the COVID-19 pandemic. It is a two-part program that will provide:

  1. Direct payments ($16 billion) to farmers and ranchers “based on actual losses for agricultural producers where prices and market supply chains have been impacted and will assist producers with additional adjustment and marketing costs resulting from lost demand and short-term oversupply for the 2020 marketing year caused by COVID-19.”
  2. Purchase $3 billion worth of fresh produce, meat, and dairy products to be distributed to local food banks and faith-based food assistance organizations. Each month $100 million each of fresh fruits and vegetables, meat products, and dairy products.

 

Where can I stay up-to-date on the latest COVID-19 information?
  1. Centers for Disease Control and Prevention
  2. Missouri Department of Health & Senior Services
  3. U.S. Small Business Administration
  4. U.S. Department of Agriculture
  5. Global COVID-19 Cases (Dashboard provided by the Center for Systems Science and Engineering at Johns Hopkins University)
  6. Missouri COVID-19 Cases
  7. University of Missouri – Cooperative Extension Service COVID-19 Resources

The Food Supply Chain

Why did closing dine-in services at restaurants affect the food supply chain?
By mid-March 2020, many states had issued “Shelter-in-Place” or “Stay-at-Home” orders and closed non-essential businesses. To help enforce social distancing, state and/or large cities also ordered all bars and restaurants closed for dine-in services. Although restaurants are allowed to continue carry-out services, for many restaurants this is a small portion of their business. The closure of dine-in services had a large impact on the food supply chain.

Each year consumers continue to spend more and more of their annual food expenditures at restaurants and according to USDA’s Economic Research Service the away-from-home share had reached 54.4% in 2018 (Okrent, 2018). Although over half of food expenditures occur at restaurants, the volume of food products consumed through restaurants is smaller because the price of food at restaurants includes the costs of preparing and of serving the food. In 2014, USDA estimated that about 34% of average daily calorie intake occurred at restaurants, corresponding to a 51.6% share for restaurants of total expenditures on food (Saksena, 2018). This suggests that the total volume of food purchased through restaurants is now over one-third. The US Census Bureau reports that food service sales (restaurants) were down 23% year-over-year in March 2020, noting that restaurant closures did not start until mid-month for most areas. By contrast, supermarket (grocery store) year-over-year sales were up 28% in March 2020.

 

 

What are some of the challenges in the supply chain?
Although some restaurants remain open to support their carry-out services, the quantity of food products that must shift from restaurants to grocery stores is a daunting task. Among the many challenges are:
  1. Restaurant and foodservice distributors must identify new customers for their products.
  2. Grocers must estimate how much their volume will increase and identify new suppliers without creating conflicts with existing suppliers.
  3. Grocers must hire additional help to handle the additional volume moving through their stores.
  4. Restaurant and foodservice distributors must adapt packaging to meet the smaller sizes retail consumers typically purchase.
  5. Particularly in meats, restaurant and foodservice distributors will have to change from restaurant cuts to the cuts of meat retail customers typically purchase.
  6. Restaurant and foodservice distributors must adjust logistics to deliver to grocery stores.
  7. All of these activities must be done in the context of protecting workers from COVID-19.

Food Service Distributors and Restaurant Suppliers
Sysco and US Food are two of the largest restaurant and foodservice distributors in the US. Sysco indicates they have redirected their products to grocery stores but even with supplying these new customers, it will not offset the losses from restaurants, arenas, schools, and universities. Smaller foodservice companies have mentioned using e-commerce and directly connecting with local customers.

Since mid-March, the International Foodservice Distributors Association has partnered with the Food Industry Association to connect foodservice distributors that have excess products, transport, and storage facilities with grocery stores and wholesalers that need more products (Redman, 2020).

 

Grocers and Wholesalers
Just as food service distributors were having difficulty finding places to reroute their products to, grocery stores knew they needed more products but there was still uncertainty about how much additional volume of food products was going to move through their stores, so it was difficult to project how much additional food to order. In mid-March, one grocer remarked, “It’s been like the day before Thanksgiving every day this week.” The surge in food purchased from grocery stores was driven not only by the closure of restaurants but also the recommendations of some officials for “residents to stock up on 2 weeks’ worth of food” (Arco, 2020) and the “perception of scarcity” which can lead to food hoarding behaviors (Shipra & Gupta, 2019; Coy, 2020).

The surge in consumer demand for products marketed through grocery stores creates not only problems with finding products but also requires additional labor to stock shelves to keep up with demand. In addition, existing labor has legitimate concerns about being exposed to COVID-19 through ongoing exposure to a large number of people. Employees have been offered incentives through higher wages, bonuses, and increased safety measures but this remains a weak spot in the supply chain. Some of the policies grocery retailers have instituted to help keep up with demand while improving employee and customer safety include:
  1. pared-down shopping hours which helps them catch up on stocking and do more deep cleaning;
  2. installing plexiglass barriers between customers and cashiers;
  3. tightening security to prevent food tampering;
  4. reduced product variety;
  5. introducing “seniors only” shopping periods to protect the health of senior citizens;
  6. using bags and packaging to bundle food items so that multiple items can be picked up at once allowing consumers to minimize their time in stores;
  7. launching online shopping with delivery and/or customer pickup; and
  8. sanitizing conveyor belts at the register between each customer.

 

Packaging, Labeling, and Variety
Many of us probably don’t think about how food products are packaged when they are destined for restaurants. We might have an idea of what we think bulk packaging based on a trip to a wholesale club, but even much of that packaging is still retail consumer oriented. A good example of the packaging problem can be found in the cheese industry. Processed cheese slices used in fast food restaurants come from a type of cheese called barrel cheese. It would cost a cheese manufacturing plant millions of dollars to switch over to produce cheddar cheese and then they would need to begin packing in 8-ounce bags instead of 10-lb or larger bags used in restaurants. As cheese manufacturers have tried to shift to smaller packing where they can, the film wrap used for packaging is now in short supply.

Part of the cost efficiencies for restaurants are purchasing food inputs in bulk which also reduces the cost for manufacturers. But 50-pound bags of flour and 48-ounce containers of sour cream aren’t appealing to retail grocery store shoppers because it is difficult for an individual to handle that quantity, consume it before it goes bad, and find a place to store it. Labeling is also an issue because food labeling for restaurants often doesn’t include the nutritional labels required by the US Department of Agriculture and the Food and Drug Administration.

Ironically, 80% of grocery store sales typically originate from 20 percent of grocery store products (Reiley, 2020). However, grocery stores carry a wide variety of products to compete with each other and improve customer loyalty. With the pandemic, grocery stores and manufacturers are reducing the variety of products available to focus on producing more products.

It is important to mention that the retail cuts of meat and the quality of meat provided to grocery stores versus restaurants can be quite different. For example, grocery store customers demand leaner ground hamburger, typically 70 – 90% lean versus the 50% lean hamburger used in fast food restaurants. The wholesale price of 90% lean hamburger increased by 7.7% from the first week of March to the first week of April, while 50% lean hamburger decrease by 50.4%. The wholesale price of beef cuts typically used by restaurants fell over the same period, including ribeyes (-7.7%), brisket (-9.1%), short ribs (-47.1%), and tenderloins (-29.3%) (Peel, 2020). Some grocery store chains still have butchers able to transform meat into the cuts grocery store customers want while the majority rely on the processing sector to supply the cuts they need.

 

Labor
The food supply chain is labor intensive from the workforce that processes live animals into cuts of meat to the workforce that stocks grocery store shelves. While efforts to protect the health of these workers have been ongoing, some of these jobs require workers to work in close proximity. This is especially true in the meat processing industry. Over the last few weeks, COVID-19 has spread into the workforce at some of the meat processing plants. The map below shows the plants that are currently closed as the red circles with a white X through them. This is expected to change and updates on these plant closures can be found here.

 


Macroeconomic Drivers

What are the characteristics of a recession?
The National Bureau of Economic Research (NBER), the generally recognized authority for determining when the US economy is in recession, defines a recession as “a decline in economic activity that lasts more than a few months.” NBER looks at the following key economic indicators to determine if economic activity has declined:
  1. a decline in real Gross Domestic Product (GDP)
  2. a decline in per capita income an increase in unemployment
  3. a slowing or decline in industrial production
  4. a slowing or decline in wholesale and/or retail sales.

Are we already in a recession?
To determine if we are already in a recession, let’s look at how some of the key economic indicators listed above are performing.
  1. Real GDP
    According to the Commerce Department, U.S. real GDP declined by 4.8% in the first quarter of 2020 (January – March).

  2. Per capita income
    Personal income decreased 2.0% in March after increasing 0.6% in February and 0.5% in January (Bureau of Economic Analysis).

  3. Unemployment
    In the seven weeks ending May 2, 2020, the total number of first-time unemployment claims totaled 33.5 million, or roughly 21% of the US labor force (US Department of Labor).

  4. Industrial production
    Total industrial production fell 5.4% in March after posting a slight increase in February (0.5%) and a slight decline in January (-0.5%) (Federal Reserve).

While most of the indicators have declined recently, the NBER definition of a recession states that the “decline in economic activity” lasts “more than a few months.” Do we have enough data points yet to say for sure we are in a recession? Possibly not. However, the trend in these key economic indicators is following the definition set out by NBER. Therefore, given how these key economic indicators have performed recently, a recession looks likely to be upon us.

 

What is causing the recession?
The current decline in economic activity is a result of the strain put on our economy by the effects of COVID-19. By May 6, more than 1 million additional confirmed cases and over 70,000 deaths had been attributed to COVID-19 in the U.S. alone. While there is no known cure or a vaccine yet for the virus, many efforts have been made to slow the spread and reduce the risk of death. Many of those efforts have resulted in severe economic consequences.

In an attempt to slow the spread, measures have been put in place to minimize close personal contact and to maintain social distancing (at least 6’ of space between people). Some of the efforts include:

  1. State and local governments enacting stay at home/shelter in place decrees and declaring state of emergencies.
  2. Having employees work remotely when possible.
  3. The closure of elementary and secondary schools and universities. Many of these institutions have gone to remote learning where possible.
  4. The closing of “non-essential” businesses like restaurants (eat in services only in many cases), gyms, salons, barber shops, etc.
  5. Travel restrictions including restrictions on international travel and the cancellation or severe reduction in business travel.
  6. The cancellation or rescheduling of conferences, meetings, and events.
  7. The shutdown or cancellation of sporting events.
While this is just a partial list, the economic consequences of these and other measures have resulted in a decline in economic activity over the last several months.

However, recently states and local governments have started to “open back up”. While these measures remove some restrictions on the economy, many fear they could also result in increases in COVID-19.

Will economic stimulus via government spending ease the economic impacts of COVID-19?
One of the main goals of the stimulus packages passed by Congress and signed into law by the President is to lessen the impacts of the COVID-19 crisis on the economy. The programs put into place through these stimulus packages are designed to help individuals, businesses and state and local governments whether the crisis. Below is a partial list of programs passed and how they are intended to help:

  1. Unemployment assistance
    Providing additional federal unemployment assistance to individuals, increasing the number of months unemployment assistance is available and making unemployment assistance available to those not traditionally eligible. By extending this safety net, the millions of Americans who have or will lose their job will be able to provide for their families. Without this assistance, families would have more difficulty purchasing food, paying bills, and making rent and mortgage payments.

  2. Direct payments to individuals
    The cash payments provided to individuals are meant to help stimulate the economy and provide cash to individuals to help them pay their bills.

  3. Small business relief
    Programs that are designed to provide tax credits, new and additional low interest loans, and relief on existing loans are included in the stimulus package. These programs are intended to help small businesses stay in business, keep employees working, and be viable when the economy begins to open up.

  4. States and local governments
    Aid is provided to state and local governments to assist with additional costs associated with the COVID-19 pandemic. States have limited ability to borrow and when their costs go up, they are often forced to cut spending. Additionally, states and local governments have shut down businesses to try to mitigate the spread of COVID-19 and thus have lowered tax revenues. States have sought additional aid to make up some of the lost tax revenue.

How will the recession impact county and municipality resources?
County and local governments receive their revenue from a variety of income sources. A majority of their income comes from taxes on sale of goods and property values. They also receive income from fees and service charges as well as grants from other levels of governments. During a recession, the decline in economic activity will result in lower taxes and fees collected by county and local governments. This puts a strain on budgets and will result in cuts in expenses, increases in taxes and fees, and additional grants from other levels of government to make up the shortfall.

Additionally, in times of economic downturns, as revenues decline, demands for many types of spending, such as those involving public welfare, increase. This puts additional strain on county and local governments.

 


Meat Processing

How have livestock slaughter plants been affected by COVID-19?
COVID-19 has had a major impact on livestock slaughter and processing facilities. Facilities have been forced to close temporarily due to employees testing positive for COVID-19 resulting in a shortage of healthy workers to keep plants running and to disinfect facilities and add additional measures to ensure the safety of workers when they return. Through the end of April, at least 18 facilities had shut down temporarily due to COVID-19. The animal slaughtering and processing industry employees over 500,000 workers (U.S. Bureau of Labor Statistics, May 2019). According to the Center for Disease Control (CDC), as of April 27, 115 meat or poultry processing facilities in 19 states had at least one case of COVID-19, including 4,193 workers with diagnosed cases (3.0% of workers). Twenty COVID-19 related deaths were reported among workers.

The shutdowns, worker shortages, extensive cleaning procedures, and additional measures being taken to ensure worker health and safety have impacted the facilities in multiple ways. The following is a list of some of the impacts:
  1. Temporary closures
  2. Reduced processing capacities by slowing down processing lines
  3. Adjusting start and stop times to breaks and shifts to maintain physical distancing of employees
  4. Installation of physical barriers between employees on production lines where possible
  5. Requiring the use of personal protective equipment, such as masks and face shields
  6. Additional staff to clean and sanitize more frequently

Many of these measures will be in place for an indefinite time and will reduce slaughter and processing capacities and increase costs to the facilities. These impacts will be felt into the future with decreased supplies and higher costs to consumers.

 

What do livestock processing plant closures mean for livestock prices?
The recent and current closures and reduced capacities in the animal slaughter and processing industry has had a negative effect on livestock prices for producers. The closures and reduced capacities have led to lower demand for slaughter animals resulting in a drop in prices received by producers. The latest United States Department of Agriculture (USDA) World Agriculture Supply and Demand Estimates (WASDE) released on May 12 projects an 11% drop in fed cattle prices and a 10% drop in hog prices in 2020. Fed cattle prices are projected to drop 16% in the second quarter of 2020 compared to the first quarter. USDA also revised downward its estimate for beef, pork and broiler production for 2020. Second quarter production, when compared to first quarter, is projected to be down 18.7% for beef, 18.7% for pork, and 6.0% for broilers.

Since the first confirmed COVID-19 case in late January, daily cash livestock prices have been quite volatile. On January 21 cash lean hog price was $60.18/cwt and bottomed out at $44.55/cwt on April 20, a drop of 26% in three months. As plants have come back online cash hog prices have rebounded to $67.89/cwt on May 13. The live fed cattle price on January 21 was $124.00/cwt and bottomed out at $94.82/cwt on May 1, a drop of 24%. Fed cattle prices have not risen as much as lean hog prices and remain below the January 21 price.



 

Why have farm-to-retail price spreads widened so much?
The farm-to-retail price spread has widened due to the strain on slaughter and processing capacity over the last couple of months. Through the end of April, at least 18 plants have shut down either temporarily or indefinitely due to shortages of workers and for extensive cleaning and installation of additional safety measures. According to the U.S. Department of Agriculture’s (USDA) Agricultural Marketing Service (AMS) for the week ending May 9, cattle slaughter is 32.2% below the same week in 2019 and hog slaughter is 24.2% below the same week in 2019.

This drop in processing capacity has put a pinch on prices received by producers. The plants cannot take delivery of market ready animals which leads to a drop in prices received and creates a backlog in the whole slaughter and processing system. The corresponding drop in meat products available for consumers has driven the large increase in wholesale prices. In the last month, the choice boxed beef cutout has nearly doubled in value to $441.53 for the week ending May 9. Meanwhile, the pork cutout value has more than doubled in the last month to $113.79 on May 14.

While the farm-to-retail price spread has widened this does not necessarily mean that animal slaughter and processing facilities are making record profits. Many of these facilities have increased costs associated with additional cleaning, protective gear for workers, increased sick leave, and bonuses and incentive pay for workers. These facilities also have fixed costs associated with running these facilities that are not reduced when capacities fall.


References

Arco, M. (2020). “Coronavirus.” nj.com. March 10. Accessed April 17, 2020. https://www.nj.com/coronavirus/2020/03/nj-coronavirus-update-officials-urge-residents-to-stock-up-on-2-weeks-worth-of-food-medicine-just-in-case.html.

Coy, P. (2020). “There’s No Good Reason to Hoard Anything, Especially Food.” Bloomberg Businessweek, April 1.

Gupta, S. & Gentry, J.W. (2019). “‘Should I Buy, Hoard, or Hide?’ – Consumers’ responses to perceived scarcity.” The International Review of Retail, Distribution and Consumer Research 29 (2): 178-197. doi:10.1080/09593969.2018.1562955.

Okrent, A.M., Elitzak, H., Park, T., & Rehkamp, S. (2018). Measuring the Value of the U.S. Food System: Revisions to the Food Expenditure Series. TB-1948, U.S. Department of Agriculture, Economic Research Service.

Peel, D. (2020). “Beef Market Impacts From COVID-19 Vary Widely.” Drovers, April 6. https://www.drovers.com/article/beef-market-impacts-covid-19-vary-widely.

Redman, Russell. 2020. “FMI, IFDA partner to steer foodservice resources to grocery.” sn supermarket news. March 19. Accessed April 17, 2020. https://www.supermarketnews.com/retail-financial/fmi-ifda-partner-steer-foodservice-resources-grocery.

Reiley, L. (2020). “The industry says we have enough food. Here’s why some store shelves are empty anyway.” The Washington Post, April 14. https://www.washingtonpost.com/business/2020/04/14/grocery-stores-empty-shelves-shortage/.

Saksena, M.J., Okrent, A.M., Anekwe, T.D., Clare Cho, C. (2018). “America’s Eating Habits: Food Away From Home.” EIB-196, U.S. Department of Agriculture, Economic Research.