Foodstuff commodity prices have recovered lost ground, returning to January levels after five straight months of declines from March to July, according to an analysis of Commodity Research Bureau data. The drop in prices during the height of the pandemic shutdown is attributed to the sudden drop in demand by schools and restaurants, which left farmers disposing of their crops.
The prices have recovered to January levels after five straight months of declines from March to July.
While important decisions are yet to come on the duration of price subsidies linked to trade disputes between the United States and its trading partners, the recovery in the food index should help policymakers early next year.
With one large exception in 2013, the growth rate of nominal gross domestic product attributed to the agriculture sector has tended to mimic the trend in foodstuff commodity prices. That’s not so surprising, given that the nominal value of agriculture output is dependent on both the volume of output and its price. Nevertheless, the robust recovery in foodstuff prices in the past few months implies a continuation of growth for the agricultural sector.
There are some important caveats to consider, however. First would be the loss of markets because of the U.S. trade war. Second, there is the weather, with expectations of La Nina’s effect of a colder and wetter climate in the Northwest and northern Plains, and hotter and drier weather in the southern states.
The third caveat is the likely resurgence of the coronavirus and its impact on the hospitality sector and education. And fourth, with government subsidies accounting for an estimated 41% of farm income in 2020, and with debt-to-asset ratios rising, farmers’ balance sheets will be at risk once income support is pulled in the coming years.
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