How Oil Prices + the Coronavirus Pandemic Have Impacted Farming
These are very uncertain times in the global market, and the agriculture industry is no exception.
Even before the coronavirus outbreak, markets were facing problems brought on by the oil price war between Russia and Saudi Arabia. Their struggles resulted in a major fall in the price of oil. Now with the coronavirus pandemic causing many markets to effectively shut down, the demand for oil has plummeted. This low demand combined with the price war have led to the lowest oil prices we have seen in years.
The fall in oil prices primarily affects agriculture in two ways: production costs and biofuels. Almost all farms use oil in some way during production, whether that be during the planting process, harvest, or sales and distribution. In this aspect, lower oil prices are beneficial to farmers because it lowers their production costs.
Unfortunately, the story doesn’t end there. Declining oil prices also hurt farmers due to their involvement in the biofuel industry. Some agricultural goods are used as biofuels which are blended into refined products. As oil prices fall, the price of these goods falls as well. Corn and soy are two of the products whose prices are most affected, but many vegetable oils can be used in refined petroleum products.
We are already seeing the impacts of these events. POET, Inc., the world’s largest ethanol producer, is stopping production at its bio-processing facilities, slowing production at its other plants, and delaying the start of a new plant. These measures will result in the furlough of 130 employees. Many businesses across the country are facing the same difficult decisions.
It is almost impossible to predict what will happen to these markets in the coming months. As the coronavirus pandemic continues, farmers may discover new opportunities. Jeff Lautt, President and CEO of POET, Inc., suggested supplying ethanol for hand sanitizer as a way to “solve the shortage problem with the pandemic and provide an additional market for our product.” However, that would still require difficult decisions regarding employee welfare, since it may not be safe to allow employees to go into work with the potential threat of the coronavirus.
So now the question is: How do farmers combat the negative impacts of both the decline in oil prices and the coronavirus pandemic?
The most important thing is for you and your employees to stay safe and healthy so that the virus will end quickly and you will be ready to work when it does. Voicing concerns to policymakers so that they can help those hit hardest by this situation is another valuable thing to do.
Respond in the comments with any suggestions that you have.