China carried over from 2019 as a key factor in the soybean, corn and wheat markets in 2020, but it was COVID-19 that was the overarching feature as the year progressed, imparting uncertainty and volatility into agricultural, equity and financial markets. Some ingredients fared better than others.

Soybeans have been leading the major commodity markets higher, pulling corn up as the latter must remain price competitive to ensure adequate planted area next spring, with wheat also receiving spillover support.

The trade war with China was a dominant market feature in 2019, resulting in a phase one trade deal and large sales of soybeans, particularly, but also of corn and wheat to China in 2020. China had its own issues as one of the first countries to deal with the coronavirus and was rebuilding its hog herd from devastation caused by African swine fever in the prior couple of years. Rapid recovery in pork production there was a primary force driving strong protein imports (soybeans to make soybean meal and certain dry dairy products, all for protein in hog feed), which subsequently slowed imports of US pork as the year progressed.

But it was far more than just China driving US agricultural markets in 2020. An initially forecast (in August) record large US corn crop was trimmed monthly after a derecho (also in August) blew through the Midwest, followed by drought in some key corn and soybean growing areas in the United States and other regions around the world, including Europe and South America.

A record-high US corn production forecast of 15,278 million bushels in August was reduced by 5% to 15,507 million bushels by November, but still was up 7% from 2019. Soybean output, forecast just shy of a record high at 4,425 million bushels in August had fallen 6% to 4,170 million bushels in November, but still was up 17% from last year and the fourth largest ever. Total wheat production, with varying growing seasons, initially was forecast at 1,824 million bushels in July, ending up 0.1% at 1,826 million bushels in September but down 5% from 2019.

Prices of all three commodities mostly moved higher. As of mid-December, the Chicago nearby January soybean future was up 26% from Dec. 31, 2019, and the March Chicago corn future was up 10%. March wheat futures were up 16% from Dec. 31 in Kansas City and were up 7% in Chicago but were down a fraction in Minneapolis following a large spring wheat crop.

Soybean meal demand specifically (as well as soybean exports to make soybean meal) was a key factor in the soybean market. The National Oilseed Processors Association reported its members crushed a record 185,245,000 bushels of soybeans in October followed by 181,018,000 bushels in November, the third highest ever after October and March 2020. Soybean meal exports, meanwhile, at 1,081,653 tons in November were the highest for any month since January 2013. Despite the large amount of soybean oil produced from the strong soybean crush, tight global vegetable oil supplies supported the soybean oil market.

Chicago January soybean meal futures on Dec. 15 were nearly 30% above the Dec. 31, 2019, closing price. The January soybean oil price was up 14% over the same period.

Another key factor in the strong soybean market was adverse weather in South America, where Brazil typically is the world’s largest soybean exporter and Argentina is the largest soybean meal and oil exporter. Weather-reduced crops in that region shifted some demand to the United States, with Brazil even importing some soybeans this fall.

The US dollar falling to 2½-year lows further enhanced export demand, making US commodities cheaper to buy.

Weather also was a factor in the North American sugar market, with US 2019-20 beet sugar output down 12% and cane sugar down 6% from 2018-19. Production in Mexico, the major source of US imported sugar, was down 18%. As a result, sugar supplies were short, import quotas were raised sharply and spot refined cane sugar prices were at eight-year highs for about half the year with spot beet sugar not available until new crop in September. 

And then there was COVID-19, which had a far greater impact on the demand of food and ingredients than on production, often shifting demand from foodservice to retail for at-home consumption. The initial coronavirus-inspired shelter-at-home period in the spring resulted in surging demand for food staples such as flour, pasta, sugar, eggs, dry beans, rice and certain other items as well as some nonfood items (toilet paper). Shortly thereafter, fallout from the lack of travel, closing of or restricted use of many restaurants and cancelation of sporting events and other mass gatherings, devastated the foodservice industry and ingredients that depend on that sector, including cheese and butter. Millions of gallons of milk were dumped in the spring before production could be adjusted.

Cheese markets (highlighted in the Dec. 8 Market Insight) were perhaps the most challenged by COVID-19. CME Group cheddar prices surged 90% (barrels) and 70% (blocks) only to both drop more than 40%, all between August and November, before steadying in December, with prices about 10% below year-ago levels. Butter prices, though less volatile than cheese, also were pressured and were about 25% below year-ago levels in mid-December. Despite mostly strong production, dry dairy products generally faired much better, in part due to export demand, with prices mixed from the end of 2019.

Demand for eggs and egg products also were affected by COVID-19. The closing of restaurants and large-scale working from home sharply reduced on-the-go breakfasts and thus egg demand from fast-food outlets. Retail demand for shell eggs increased, with prices hitting record highs in early April, and held up well during the pandemic, but it was not enough to offset the loss of foodservice demand and strong egg production. Liquid whole egg prices fell to record lows in late April as in shell egg prices plunged 66% in just a few weeks. Egg prices were ending 2020 flat to down about 10% from a year earlier, but egg product prices, especially dried items, mostly were above year-end levels due to strong demand from food manufacturers making products for retail. 

Cocoa also was affected by COVID-19, with reduced global chocolate demand due to sharply reduced travel tending to limit price gains. Significant volatility was inserted into the futures market by a contentious and violent presidential election in top-producing Ivory Coast, and by controversy over a $400-per-tonne living income differential imposed on 2020-21 crop cocoa beans by the Ivory Coast and Ghana.

Meat supply was uniquely affected by COVID-19 as numerous packing plants were forced to close because of workers falling victim to the virus. As a result, livestock, especially hogs, backed up at the farm or feedlot level, meat on retail shelves grew scarce, wholesale beef prices more than doubled and pork prices jumped about 75% from early March to early May. Meat prices then plunged about 45% to pre-pandemic levels by early July as plants resumed somewhat normal operations and worked through the backlog of livestock. As of mid-December, the US Department of Agriculture’s beef cutout value was flat with the end of December 2019 while the pork cutout value was slightly lower.

Major events continued to occur into the final days of 2020. Russia last week set in place a grain export limit of 17.5 million tonnes from Feb. 15 through June 30 and put an export tax on wheat of $30.40 per tonne to curb soaring food prices. The action further fueled market volatility, especially in wheat, with Russia the top world exporter.

In other markets, equities seemingly defied logic to set record highs multiple times this year. Transportation was stressed due to coronavirus-related delivery demands but for the most part performed admirably, especially in the case of trucks.

The impact from COVID-19 continues, with much hope for health and economic recovery hanging on vaccines that began to be administered in recent days. Couple that with a new administration in Washington that may impact agricultural programs and trade policy, and 2021 approaches with perhaps less trepidation but no less prospect for volatility than 2020. The next issue of the Market Insight will look at commodity and ingredient prospects for 2021.