This article was published in Cornhusker Economics on June 3, 2020
Government and industry responses to COVID-19 cases have created a variety of unique situations in the agriculture industry. “Stay-at-home” orders forced consumers to be homebound, increasing the demand for food in grocery stores while reducing the need for food in restaurants. These caused a series of rapidly changing supply and demand conditions along the livestock supply chain. Meat destined for restaurants needed to be repacked and reprocessed to make it compatible to sell in grocery stores. Meat packing plants continued to try to process harvest-ready animals, but a growing number of positive cases among plant workers forced idling, reduced plant utilizations, and – in some cases – resulted in closures. This created a temporary supply surplus situation for livestock producers while creating a meat shortage for retailers. Since price reflects scarcity in a market system, livestock cash prices dropped and wholesale cutout prices rose. The cumulative effect was livestock producers selling livestock far below breakeven prices.
Rising and changing feed costs further reduced livestock producer profitability. As “stay-at-home" orders reduced consumer travel, demand – and subsequently prices – for ethanol fell, causing some ethanol plants to idle and close. Distillers grains are co-products of ethanol production and are used as an energy- and protein-rich feed source for some Nebraska livestock producers. Decreased ethanol production decreased the availability of distillers grains. Once again, since prices reflect scarcity, distillers grains prices rose. However, these effects were not the same across location and type of distillers grains. While much of the commentary regarding the impact of COVID-19 on the livestock industry has focused on meat packing difficulties and livestock prices, this article diverges slightly by exploring the repercussions of COVID-19 on the market for distillers grains. Specifically, we examine how the prices of different distillers grains varied in relation to corn – a common feed substitute – and how these effects varied spatially.Full Article on Cornhusker Economics