FAIRBURY, Illinois — Before the coronavirus pandemic hit, Kilgus Farmstead in Central Illinois produced 6,500 gallons of milk a week. The family-run farm in Livingston County relied on orders from Chicago-area restaurants, coffeehouses near the University of Illinois campus in Champaign, retail stores in the Interstate 74 corridor and walk-in customers at its farm store.
Demand for Kilgus milk — whole, reduced-fat and skim, heavy cream and half-and-half — has dwindled in recent weeks. The farm, which processes milk from a herd of Jersey cows on-site, has been producing less than half its usual amount, down to about 3,000 gallons.
“You’ve just whacked about half of the dairy market, that is just gone,” said Matt Kilgus, who operates the farm with his family. "You’ve got this dairy product and nowhere for it to go.”
The coronavirus pandemic is touching all aspects of the American economy, including farmers like Kilgus throughout Illinois and the Midwest who are the lifeblood of rural communities and essential to the nation’s supply chain. Commodity prices have fallen, demand has dropped, processing systems have been under pressure and the transportation network is under strain.
With restaurants, coffee shops, offices and schools across Illinois closed or filling only a fraction of their usual orders because of the virus, demand for milk has plummeted. The Kilgus farm depended on Chicago and coffeehouses in the city's suburbs that order their specialty milk for lattes or mochas for a large part of their business. The farm usually sends 16 pallets of milk products to Chicagoland outlets each week. Now, that number has been reduced to four.
The dairy sector is only one part of the agricultural economy affected by coronavirus. With fewer people driving to work or school, gasoline sales are down significantly, putting pressure on the ethanol market and the corn farmers who supply it. And with many Americans eating more meals at home during shelter-in-place orders, the beef industry is adjusting to a new, if temporary, reality.
“This is not something that we’ve experienced, really, in anybody’s lifetime,” said Jonathan Coppess, director of the Gardner Agriculture Policy Program at the University of Illinois at Urbana-Champaign.
The coronavirus, and the related shutdowns, is having ripple effects throughout the economy, providing “a whole set of uncertainties and challenges,” Coppess said, to an agricultural sector that has been under pressure since the Great Recession, then battered by weather woes during the past year.
The prices of nearly all Illinois farm commodities have been declining since mid-January, according to the Illinois Farm Bureau, and COVID-19 has led most commodity prices to tumble further. The dairy and ethanol sectors have been hit particularly hard.
Ethanol plants account for about one-third of the demand for Illinois corn, according to the farm bureau, and with production down, that has lowered bids for corn. Corn prices have dropped about 10% since mid-February.
The price of gasoline, which is blended with ethanol, is down 30% since February, according to the farm bureau. Illinois is the third-largest producer of ethanol in the United States and is home to 14 ethanol plants. One of those plants, One Earth Energy in central Illinois, recently went idle. Ethanol production has dropped to its lowest level in six years.
Milk prices, meanwhile, have decreased by more than 25%, the farm bureau reports, mainly because schools, the main purchaser of milk and milk products, have closed their doors during the pandemic. Border closures have also had an effect because nearly a quarter of U.S. milk is exported. This upending of the supply chain has led to backlogs.
For Kilgus, that has meant scrambling to find new purchasers, throwing out excess milk when demand first plummeted and cutting prices to move more product
“If you have no home for it, or no place for it, you have no choice but to dump it,” Kilgus said.
He also reduced his herd from 150 to 115 cows. Some cows were shipped off to market, while others were allowed to rest up without producing milk earlier than normal, Kilgus said.
In the weeks after stay-at-home orders, he sold milk to grocery stores and markets in central Illinois whose shelves had been emptied by consumers. With that initial run now over, he has had to recalibrate his operations and keep his fingers crossed that demand will eventually rebound once restaurants and stores can reopen. Kilgus also sold heavy cream to a local place that makes butter. In five days, though, the price for cream dropped 25%, he said.
“It’s been such an emotional roller coaster,” said Kilgus, 38. "There is no normal. We’ve worked 10 times as hard to sell half of the product.”
Pumping the brakes
For corn and soybean farmers in Illinois and Iowa, the coronavirus has put new pressures on an agricultural community that has already been fighting an uphill battle for years. Weather conditions and international trade issues, in particular, have pulled on the farming economy even as the rest of the country recovered from the 2008 Great Recession. So while farming has not been as hard hit by coronavirus as other parts of the economy, it has had less room to fall, economists said.
“The agricultural economy is faring better than other sectors, but that’s also because the agricultural economy was under pressures before COVID-19,” said Chad Hart, associate professor of economics and a crop markets specialist at Iowa State University.
The coronavirus shutdowns began to roll out just as farmers began their preparations for spring planting with expectations that this year would be an improvement compared with 2019, according to the U.S. Department of Agriculture. Much of the Midwest was pummeled last year by persistent rains, which hampered planting, delayed harvests and reduced production. Now the future is full of uncertainty.
“It’s just been like, how much worse can this get now?” said Chris Hausman, a corn and soybean farmer in Champaign County. “The stress level is going to be extremely high for a lot of people.”
Hausman was preparing to buy a newer tractor with more horsepower and a couple of fancier features this spring. The coronavirus crisis ended those plans.
Concerned about the financial implications of the pandemic, Hausman said it was too big of a risk to make such a big purchase. The 3-year-old tractor he had his eye on at the local dealer costs several hundred thousand dollars.
“I’m just putting the brakes on this,” the fourth-generation farmer said.
As he prepares to plant the first of his soybeans in the coming days, Hausman said he will make do with his 2009 tractor.
“The old tractor is doing just fine," Hausman said.
Thinking positive, then a curve ball
With more favorable weather conditions predicted, U.S. farmers were anticipating greater yields this year. The USDA spring forecast planting report indicates farmers throughout the U.S. plan to plant more corn than a year ago. But the USDA survey was taken right before most coronavirus shutdowns started.
Many farmers have already purchased their fertilizer and seed for the upcoming planting season, Hart said, but the coronavirus crisis likely will change the calculus on how much and which crops they plant as they look at the markets and consider the ramifications of shutdowns. Most fields will be seeded by the beginning of May.
Farmers have their fingers crossed the rain will hold off, unlike a year ago, when many had to delay their plantings until early June and others did not get seeds in the ground at all because of the weather and saturated soil conditions.
The USDA’s March 31 report reflected that optimism, with the amount of corn to be planted this year expected to be up 8% from a year ago, and soybean planting expected to be up 10%. Illinois ranks No. 1 nationally for soybean production and No. 2 for corn (behind Iowa).
But with coronavirus shutdowns rolling out across the nation, the May futures price for corn has fallen 15%, according to the American Farm Bureau Federation. The decline is mainly tied to the drop in ethanol futures, which have plummeted 38%.
The ethanol market may be a harbinger of what is to come in other sectors, Coppess said.
“The ethanol plants are taking a pretty significant hit,” he said.
Also at play are the export markets. With China and countries across the globe struggling with the coronavirus, demand for commodities, especially soybeans is soft. The May futures price for soybeans has fallen by 10%.
But the paradox of farming in recent years has been that while farmers have produced exceptional yields, there has been more supply than demand, which has forced prices down, Coppess said. The trade problems with China, a top destination for U.S. soybeans, have not helped matters.
What may help the agricultural economy is that as more people are forced to stay home for weeks, more people are cooking at home, buying more food than usual. Still, with restaurants shuttered or only filling carryout orders, the end result is likely to be a wash for the agricultural community.
“I don’t expect to see a tremendous shift either way due to restaurant consumption versus home cooking,” Hart said. “There will be different concentrations within that mix."
With beef, for instance, consumers tend to eat either high-end (steaks) or low-end (hamburgers) when eating out, Hart said. Now, with more people cooking at home, he said there may be a boost for roasts or meats people can grill from home. Fast-food restaurants that remain open may keep demand for lower-end beef going, but a drop in visits to steakhouses or restaurants that serve fancier meals may hurt demand for high-end cuts of beef.
Demand for pork and beef from corporate and school cafeterias and restaurants has plummeted during the pandemic, according to the farm bureau, leaving grocery stores with a much larger share of meat purchases. ; and processing plants, as well as the transportation network, have had to adjust to the changes, creating backlogs at slaughter-packing facilities, some of which have recently suspended operations because of the coronavirus.
Hart said that while consumers may be noticing that beef prices at the supermarkets are running 10% higher, that does not necessarily translate into increased profits for livestock farmers. The price for livestock has fallen about 20%, Hart said, which means that much of the cost that is being passed along to the shoppers appears to come from increased processing and transportation costs during coronavirus clampdowns.
‘Changing by the hour’
With the tentacles of the crisis touching all aspects of American life, Congress included help for the farming sector in the coronavirus aid bill in an effort to blunt the damage.
The coronavirus aid bill provides $9.5 billion in support for farmers hardest hit by the pandemic, which includes “producers of specialty crops, producers that supply local food systems, including farmers markets, restaurants, and schools, and livestock producers, including dairy producers.”
The aid bill also includes $14 billion for the government-owned Commodity Credit Corp., which makes payments to farmers and provides price support to help stabilize, support and protect farm income and prices. But how those funds will be used is still being hammered out. The bill also provides money for loans for rural businesses and money for food aid programs for poor families.
The coronavirus crisis has thrown a curveball into operations statewide, said DeAnne Bloomberg, director of issue management for the Illinois Farm Bureau.
“In general, I’d say we are optimistic that things are going to get better, and these funds are just one piece of the pie,” she said. “We know it will help us in the short term. In the long term, it will take a lot of factors to get us where we need to be.”
Kilgus, the dairy farmer who also grows corn, soybeans and wheat on 2,500 acres near the town of Fairbury, has applied for small-business loans and hopes the federal aid bill may provide some relief. And he said he hopes commodity prices don’t fall too far.
“I try not to throw a pity party for myself,” Kilgus said, “because there are people in much worse situations than we are.”
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