Unprecedented. Crazy. Shutdown. Weird. Work at home. Shelter at home. Stay at home. It doesn’t matter how you describe it, AgriTalk host Chip Flory said it’s our reality.
“It is what it is. It will have an impact on how we conduct business right now and it will have an impact on how we conduct business a year from now and a decade from now,” Flory said during Farm Country Update.
When it comes to the market disruptions today, Flory said some farmers are up for dealing with disruption and some are not. He said, “We’re pulling the future forward because we’re figuring out how to use some of the technology that might have been months, years or decades away from figuring it out.”
During the May 14 Farm Country Update, Flory visited with Dan Basse, president of AgResource Company; Paul Neiffer, CPA/business advisor for CLA; and Jim Wiesemeyer, policy analyst for Pro Farmer about the economic, supply chain and political impacts of COVID-19 on U.S. agriculture.
Respond, recover and reimagine
In order for the food chain to thrive post COVID-19, Wiesemeyer said major changes are needed – both short-term and long-term. He said he likes to use the phrase “respond, recover and reimagine.”
“That’s the process we’ll be going through, especially in the meat processing industry,” Wiesemeyer said. “You’re going to have to see major innovation go on to have the faith of the livestock sector and the workers in order to survive that industry.”
Bigger meat processors are looking for ways to incorporate more automation in the plants and are looking for the processes machines can do that people do today.
Basse said the problem lies in fabrication and having employees on the line shoulder to shoulder and elbow to elbow.
“We're probably going to get packing capacity back to 85% maybe 90%, but we need automation, we need to have technology take over,” he says. “This is where I think the next investment hub will be. I think a lot of these processors and packers will be investing in that technology, so that they can shed people and have a more assured deboning and fabrication process than we have today.”
Options are important, Wiesemeyer added. “We were just too married to one option and we were caught. So now we've got to redistribute the end process.”
Meat production estimates
The meat production estimates in the latest USDA World Agricultural Supply and Demand Estimates (WASDE) reports reveal some interesting trends, Flory said.
“The forecast of 7.5 million less hogs is a big deal – whether slaughter hogs (which I doubt it) or sows that got killed or pigs that were forthcoming or piglets being euthanized, 7.5 million hogs less from one WASDE to the next is something I’ve never seen in my 41 years,” Basse explained. “It’s a big drop. Remembering we still have 2.2 million hogs backed up in the system, 1 million or a little over that in terms of cattle, I believe there’s going to be a big marketing hole as we look toward the end of the year.”
He said placement rates and euthanization will create a real void of meat production in the fourth quarter assuming the economy gets back to some health.
Animal activist opportunities
Unfortunately, livestock producers are not only facing financial implications but also animal welfare considerations.
“They want to have the best process. That’s why there’s a fervent need for an indemnity payment to clear up the backlogs, to settle the industry down,” Wiesemeyer said. “I don’t think it’s a question of if, but when, the U.S. government announces when there will be some indemnity payments.”
Communication is important during a time like this, Neiffer said.
“You have to be transparent,” Neiffer said. “I mean you're not killing these animals just because you want to kill these animals, you’re doing it so they don't suffer anymore.”
Take a piece of the pie
With the market realities ahead, how are you advising your clients now? Flory asked the panel.
“I think what we find throughout history when we have economic shocks like this, you tend to make more money or do well when times are bad then when times are good. When times are good you end up making too many stupid mistakes,” Neiffer said.
His clients are viewing this time as an opportunity to expand, to get their efficiencies where they need to be, and to be ready to take advantage of the rebound when it happens.
Basse said he hopes all of his clients are in financial strength to make it to the end and is encouraging them to think forward. His advice: Manage your risks to be in the position that when this health event is over, you can capture some of that rebound.
“It’s a combination of getting your basket ready to catch payments but also thinking about the future so for the next couple of years, you can be in that position to expand and go forward to be a businessman or woman that can progress into the future,” Basse said.
Flory added it’s like Merrill Oster used to say, “When the pie is passed, take a piece.”
To watch Farm Country Update, visit farmjournal.com/farm-country-update.