Scary times! The fallout from the Covid virus is wreaking havoc on the world. The tragedy of all the deaths is obviously the worst affect. However, preventing the spread is having more serious ramifications than anyone could have imagined.

 

The most severe market example this past week was the dramatic, unprecedented collapse in crude oil prices. Prices in the nearby May futures contract fell to a MINUS $37.63 per barrel. The collapse in energy demand meant there was nowhere to go with oil.

 

Meanwhile there are still ocean liners looking for a place to unload and it costs money to store it. That’s why the price went negative. The wealth destruction in the energy sector is huge. This, unfortunately, could be a precedent for other markets as well.

 

Agriculture, too, has taken a big hit. Livestock producers are having trouble marketing their product as packing houses are shutting down. That means producer prices are very weak and many animals will likely need to be culled.

 

Meanwhile, retail meat prices could easily spike higher. If less animals are being processed, shortages may develop. Longer term, it could increase the demand for plant based protein if prices get too high.

 

Grain prices are suffering also. Less livestock, as farmers cut back their herds, means less feed demand. Corn for ethanol demand is collapsing, as refineries close down or cut back. Old crop carry outs in grains are going up rapidly.

 

Corn has been the worst performer. On April 21, nearby corn futures hit $3.01/bu, exactly tying the low hit in August 2016. The last time corn traded under $3.00 was in 2009. It’s getting hard to pencil out a profit at current prices.

 

Trump must realize the severity of the situation on their farms, as he has pledged another $19 billion for agriculture. $3 billion will be to buy food for food banks etc., while $16 billion will be direct payments to their farmers.

 

He also gave their farmers $15 billion in 2019 to make up for the market losses caused by his trade dispute with China. Fully one third of US farm income came from government handouts last year.

 

The need is much greater now. Canadian farmers are dealing with the same markets as their American counterparts. Agriculture isn’t even on the radar for our government. They’re dispersing money to others who need it, so why not agriculture?

 

I’m sure it’s partly that farmers make up such a small portion of the population. However, they are amongst the most important people in our society. It may also be that it is such a diverse industry, with different interests, but they are all hurting right now.

 

Our government needs to step up to the plate and at least level the playing field somewhat as farmers head to their fields to plant the next crop.

 

Frank Backx   

 

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