As much of the world grinds to a halt to slow the transmission of the novel coronavirus (COVID-19), on a trajectory to infect millions and kill hundreds of thousands of people, flour mills in many countries are grinding wheat at a furious pace.
Though flour demand has collapsed in the foodservice industry, with restaurants shut down in the hardest hit countries, home flour and other grain-based products have been flying off grocery shelves as consumers stock up on inexpensive, non-perishable items in case this pandemic lasts months instead of weeks. As a result, demand for wheat soared during the pandemic’s first several weeks, lifting prices at the Chicago Board of Trade and Euronext by more than 15%. At least for the near term, that was a positive development in an otherwise bleak situation that is having devastating health and economic consequences for many countries.
The last global pandemic on this scale occurred more than 100 years ago, in 1918-19, when an influenza outbreak killed 50 million people. It was a very different, less globally connected world then, so today’s political and medical leaders are not only making decisions based on limited information about this new, mysterious virus, but also without real-life experience of dealing with a pandemic of this magnitude.
The most daunting challenge is to balance public health and economic interests, with the biggest question being how long do countries attempt to quarantine their citizens and keep “non-essential” businesses closed? In the ultimate damned-if-you-do and damned-if-you-don’t predicament, they risk total economic collapse if businesses are shuttered and citizens quarantined for too long, but the high probability of increased illness and death if they allow a return to business as usual too soon.
It’s still too early to precisely determine how the pandemic will impact the grain, flour milling and feed milling industries. In the last global economic recession in 2008-09, corn and soybean prices plummeted by nearly 50% in the first four weeks of that crisis. The decline of soybeans and corn prices since this crisis began has been about 15%, but from a lower starting point. One parallel to the current crisis is that crude oil prices dropped 77% to $33 per barrel in 2009. In late March of this year, the price per barrel had slipped even lower, to $20 per barrel from a recent high of $63 at the end of 2019. This is partially due to shelter-in-place orders in the United States, China and other major oil-consuming countries that have drastically reduced auto, train and plane usage, leading to a crippling economic impact on fuel manufacturers, including grain-based biofuels producers.
As for the global animal feed industry, it is still recovering from the African swine fever outbreak that impacted hog herds in much of Asia and Europe in 2019 and may slump further as demand for meat typically declines during severe economic downturns.
The grain-based foods industry is usually well-positioned to endure severe economic downturns because of the essential and durable nature of its products. But with economists warning that global unemployment may exceed levels of the 1930s Great Depression, even industries offering the most basic of needs may struggle to successfully navigate this potentially uncharted territory.
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