Ben Brown

2020 Agricultural Policy and Outlook Conference highlights – Day 4

By Dusty Sonnenberg, CCA, Ohio Field Leader: a project of the Ohio Soybean Council and soybean checkoff

The 2020 Agricultural Policy and Outlook Conference concluded with topics focused on consumer demand and commodity outlooks. Zoe Plakias, Assistant Professor in Agriculture and Food Economics, presented an outlook on consumer demand heading into 2021.

Plakias shared that in light of COVID-19 there have been some notable changes in consumer spending habits.

“There have been some key changes in how people buy and shop since the onset of COVID-19,” Plakias said. “There have been key changes in how much people buy, and what they are buying. There have also been key changes in where and how people shop.”

Total food spending was down by 8.6% in the last year. Not surprisingly, total food spending was lowest in April, but rebounded slightly over the summer. The monthly food sales data comparison between food consumed at home versus food consumed away from home noted a dramatic decline in the sales of food consumed away from home, but a slight increase in sales of food consumed at home. In terms of actual expenditures, money spent on food away from home declined over 50%, while money spend on food consumed at home increased nearly 20%. At the same time, consumer prices for food at home increased about 5%.

“This 5% shift is not substantial when you consider some of the necessary shifts in the supply chain,” Plakias said. “What this tells us is that our supply chain has adapted relatively well to maintain relatively stable consumer prices at this time.”

Online food shopping has seen changes amid the COVID-19 pandemic when comparing 2019 to 2020.

“U.S. Grocery E-commerce sales have increased by 450%, year over year, when evaluated in dollars spent,” Plakias said. “Local and Regional Foods E-commerce also experienced a nearly 360% increase in that same time period.”

Ben Brown, assistant professor of Professional Practice in Agricultural Risk Management gave an outlook on commodity markets.

“Coronavirus was a Black Swan Event,” Brown said. “In livestock, health precautions for packing plant workers reduced capacity or shut down complete facilities. For ethanol, consumption as a function of gasoline demand declined. This was due, in part, to roughly 40% of Americans working from home. There was also substantial government assistance to agriculture in this time period from the CARES Act.”

The forecasted gasoline demand in 2021 and how the EPA sets the Renewable Volume Obligation (RVO) are going to be important for all biofuels in marketing year 2021.

“What the EPA does with the 2021 Renewable Volume Obligation will have large impacts on RIN markets,” Brown said. “The EPA can increase the percent standard by holding the RVO constant to 2020. This would push RIN prices up. The EPA could also reduce the RVO, to hold down the percent standard for 2021 compared to 2020, which would push RIN prices down. Reduction in ethanol from this situation is the equivalent of 580 million bushels of corn that would have been used to produce ethanol. To put that in perspective, Ohio’s corn crop is around 554 million bushels. We lost more in lost ethanol demand than the entire Ohio corn crop.”

The improvement in the grain markets has not gone unnoticed.

“Fundamentals have greatly improved for both corn and soybeans, but especially for soybeans,” Brown said. “Fund managers and speculators are excited about demand prospects. There is delayed planting in South America, and a shortfall in the available Chinese corn supply. Trade relations have improved, and China’s breeding hog herd is recovering faster than expected. Looking ahead to 2021, it is likely and expected that we will plant more acres of soybeans.”

William Hahn, agricultural economist with the USDA, ERS presented his forecast for meat supply and demand.

“Going into 2020, continued expansion in cattle and hogs was expected,” Hahn said. “There were positive developments in trade policy toward the end of 2019, and African Swine Fever in China and South-East Asia had expanded demand for imports in that region.”

Response to COVID-19 was one of the major drivers of beef and pork markets in 2020.

“The big story so far in 2020 has been COVID-related demand and meat packing shocks,” Hahn said. “Concerns over the health of workers, and workers calling off sick greatly reduced the operating capacity of some packing plants, and caused others to temporarily close. This was noticeable in both the hog and cattle slaughter capacity numbers versus the actual utilization. As the packing plant capacity dropped, the wholesale price took off. Meanwhile the live cattle prices moved lower. Currently the forecast is for higher production and prices for fed cattle and hogs in 2021.”

The 2020 Agricultural Policy and Outlook Conference was sponsored and hosted by The Ohio State University Department of Agricultural, Environmental and Development Economics. Conference speaker presentations can be viewed online. For more information visit:  https://aede.osu.edu/programs/202021-agricultural-policy-and-outlooks

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