The economic parallels from the COVID-19 epidemic are quickly changing from comparisons to the recent financial crisis in 2008-09 to the Great Depression. My parents and grandparents lived through the Depression and it did have many impacts on their everyday lives.
The main symbol of the Depression-era mentality was the two enormous chest freezers in my grandparents’ basement. This was in addition to the canned fruits and root vegetables that were stored in the basement. These stocks were for essentially three people. One of the lessons from the Depression was that food supplies for at least one year were required — just in case something bad was going to happen. The world may have been moving to a just-in-time food-distribution model, but it was not a theme in my grandparents’ house.
Food security is coming to the fore in this COVID-19 world and there are signs that supply chains are beginning to buckle under the strain. Meat supplies will be strained if plant closures due to COVID-19 continue to occur. One of the largest clusters of COVID-19 cases in the U.S. is now located in South Dakota, at the Smithfield Foods pork plant in Sioux Falls. Argentina and Brazil are experiencing delays in loading grain vessels due to COVID-19 and China is having trouble unloading boats that arrive. Russia, Romania, Ukraine and Kazakhstan all have issued some form of grain or flour export restrictions as those countries monitor progress of their 2020 crops.
Stocks of grains globally are more than adequate to buffer these supply chain interruptions. At least, that is what the markets currently believe. The only problem is that although stocks are at near record levels, most of the surplus grain in the world is now in China. The three major grain staples — wheat, corn and rice — are projected to hit 777.5 million tonnes by the end of the respective crop years. Of those stocks, 60 per cent will be located in China. Ten years ago, 35 per cent of the global stocks were located in China. Since China does not normally export significant amounts of grain, these stocks are not available to the market.
The rest of the world (ROW, in the graph shown above) has maintained relatively constant stocks of the three major grains as China has been increasing its stocks. Only 310 million tonnes of major grain stocks are located in the ROW countries. This is up by only 15 per cent from 2010-11 levels.
Do these relatively low level of stocks matter? The answer is that the low stocks levels will not matter until we encounter a problem in the major exporting countries. If a problem does occur, there is only one country with the equivalent of my grandmother’s freezers, and that is China. Markets, in my opinion, continue to be lulled by the overall stocks levels and are not pricing in the current risks to the global supply chain.
— Bruce Burnett is director of weather and markets information for MarketsFarm, a premium subscription service owned by Glacier FarmMedia.