TOP FARMER WEEKLY PERSPECTIVE 4/9/2021 BY BRYAN DOHERTY
What a Year
A year ago, the world was challenged with great uncertainty, as the onset of a pandemic took hold. This was something new. It affected every aspect of world trade and the way we live. And still does to this day. This Perspective will look at the roller coaster ride of events that unfolded from early 2020 until today. As time passes, this past year will be viewed as one of the more volatile time periods in history.
When word of an infectious disease began to circulate early in 2020, there were few people who really understood the ramifications. Events unfolded rapidly as COVID-19 spread across various nations and made its way to the United States. In the world of agriculture, no one really had a sense of how it might impact consumers or producers. Supply lines were challenged, as no other time in history has the meat packing industry experienced shutdowns. Inventories were backed up. Shipping lanes throughout the world were closed and supplies were not making their way to where they were most needed. Many in the working world were pushed from their offices and workspaces into an environment that quickly required a home makeover to accommodate work needs. Regardless, farmers had to move forward and, like everyone else, had to adapt.
The onset of the pandemic was more news that seemed to be stacking onto already challenging news. The January USDA Supply and Demand report numbers were finally going to reflect the true struggles of the 2019 growing season. Would the USDA get it right? Nope, the January report was not a friend to the farmer. Still, strong basis continued to suggest limited supplies and offer some hope that future reports would reflect light test weight and lower yields. Then COVID hit.
During the height of COVID-19 uncertainty, energy prices collapsed on worries of declining demand. A price war between Russia and Saudi Arabia ensued and, for a brief period, crude oil futures contracts traded in negative price territory, another first for most. Consumers rushed to secure goods and store shelves were mostly bare. As the world adapted, so did farmers. Crops were planted timely and off to a great start.
Then, the derecho windstorm hit Iowa. Damage was larger than most anyone had ever seen in their lifetime. The impact was real. August turned hot and dry, and yields were affected nationwide. The August supply and demand report reflected heavy supplies and prices were still reflecting some of the largest forecasted carryout in history. Once harvest got underway, however, yields did not quite live up to expectations and basis levels began to improve. As the world was moving back to some normalcy, export demand was on the rise. A trade deal signed with China in January was taking affect as China became a massive buyer. Managed money flipped from short positions to long virtually overnight. Finally, in September, the USDA Quarterly Stocks report indicated far fewer bushels on hand. A bull market was starting.
By autumn, the stock market was also in a strong recovery mode after plunging in spring. It made one of the sharpest comebacks in history. Energy prices recovered, and demand for agricultural goods soared. China became a major player, buying almost any commodity, as their expectation for a full recovery from COVID had their buyers coming to the U.S. in full force. Dry weather affected the early planting season for Brazil and eventually reduced yields for the Argentine corn crop as well. Uncertainty still exists today regarding South American crop sizes. Commodity prices reached their highest level in seven years.
November brought an election that ushered in a new administration. Historically, the incumbent president has been reelected when the economy is in strong shape. Timing with COVID and uncertainty with other political events likely contributed to President Trump losing. Certain economic sectors were hurting while others were thriving. The restaurant industry and others in similar-type businesses suffered greatly. Consumers were not traveling; they were buying pickup trucks and do-it-yourself supplies. Lumber became scarce and prices skyrocketed. Further drawdowns to corn and soybean supplies were noted. The March 31, 2021 USDA stocks and acreage reports were supportive.
Never has the world experienced such uncertainty at one time. Never has the spirit of people been tested on such a wide scale. Looking back, everyone did what they needed to do. For many, an entrepreneurial spirit was born. There is a renewed sense of “we can do this” and “we must do this.” Thank goodness, technology was at a point in history to allow many businesses to move forward with little disruption.
We cannot know what the next year will bring. With enough vaccines to potentially corral and defeat COVID-19, a renewed optimism has been born. It is a good year to be a farmer. After peering into a bleak abyss last spring, for many, the best opportunity to price grain and livestock in more than a half a decade now exists. There is more to the story to be experienced, and perhaps a year from now the narrative will be much different. Optimism, however, is on the rise – a major victory, considering just 12 months ago defeatism was paramount. What a year.
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