Grain farmers have sustained a major hit to their 2020 income outlook, say University of Illinois Farmdoc project economists.

Still, corn prices are recovering from a coronavirus-induced shock, with May corn futures closing at $3.48 per bushel on March 26. That’s better than the multiyear low of $3.35 reached on March 18, but a far cry from the $3.80-per-bushel prices earlier this year.

Ag economist Scott Irwin spoke during a University of Illinois webinar two days after corn hit the low. He said prices for live cattle fell to their most recent bottom twice, on March 16 and March 18, alongside two major drops in the stock market.

Feeder cattle futures reached down almost 30% from where prices started on Jan. 1, which comes close to matching stock market losses. They’ve since recovered about 10%, a similar pace to the S&P 500 index.

Irwin noted that the strong correlation between the two assets is historically unusual and not the case for other ag commodities.

“The grain markets have actually fared much better relative to these other markets,” he said, noting the corn market was down 15% at its lows. It’s since fluctuated at about a 5% recovery.

While corn’s price increase hasn’t been as steep as that of the S&P and cattle, so far, its fall isn’t as pronounced either. Irwin cautioned the future will be volatile.

“We’re all trying to analyze and try to game out where we go from here,” he added.

Outside of corn, wheat futures have had a strong rally based on consumer demand. Chicago May wheat futures closed at $5.80 per bushel on March 25 — a two-month high before falling 11 cents by the close the next day. Soybeans recovered to early-March prices on March 24, giving back some of the gain the following days to close at $8.80 per bushel on March 26.

Potential for COVID-19 soybean supply chain disruption in South America, Europe and China may support soybean prices that fell to a low of $8.22 per bushel, says Todd Hubbs, a U of I ag economist specializing in commodity markets.

Gary Schnitkey, a U of I ag economist, adds the legume may be the more profitable crop in Illinois’ 2020 season, “though it’s too early to say.”

While Hubbs would prefer the economic contraction precipitated by COVID-19 to last two months or less, “that doesn’t look like it’s in the cards for us this year.” He says the most important priority is protecting the food and input supply chains so they can continue to feed global and domestic markets.

Market outlook

Nick Paulson, a U of I economist specializing in ag policy, says he doesn’t think China can honor its Phase 1 trade deal requirements anymore — by necessity, not choice. Despite the Federal Reserve creating new money supply to support lending, the dollar remains strong. Low commodity values make buying from America less attractive.

“China may do everything they can to meet their commitments, but they have a number of things working against them,” Paulson says.

Ethanol demand spiraled down with oil prices in March, and with refiners closing and switching production to hand sanitizer, fewer dried distillers grains will go to market. That could mean prices for corn would have a helpful support.

“The second quarter may not be as bad with feed usage if we can keep the meat supply chain moving. My concern is the price drop in the livestock sector. We see a significant scaling back in the second half of 2020,” Hubbs says. “But for this marketing year, I think you’ll see a pretty strong feed usage for corn.”

Demand for grain is strong in countries that have “flattened the curve” of newly infected citizens, like South Korea.

“South Korea seems to have flattened that curve pretty well, and they’ve been actively buying corn recently. I hope to see that continue,” Hubbs concludes.