After crop insurers saw their worst results in a decade in 2019, the COVID-19 pandemic and weather events so far in 2020 have globally disrupted the supply chain of agricultural goods and further damaged crop yields, according to a new AM Best report.
Challenges facing farmers and multi-peril crop insurers in 2019 included trade wars with other countries, particularly China, problems due to heavy rainfall and historic flooding across the Corn Belt, and commodity price volatility and labor shortages.
AM Best notes how these factors contributed to the worst year in a decade for multi-peril crop insurers, which reported an aggregate combined ratio of 108.9 in 2019, a substantial deterioration from the 85.0 recorded in 2018.
At the beginning of the COVID-19 outbreak, demand reportedly increased as consumers flocked to stores to purchase products, which led to shortages and temporarily raised the price of those products.
In contrast, the decrease in demand from restaurants, hotels and universities was dramatic.
Because driving has declined in 2020, AM Best says the demand for ethanol, of which 38% of the corn produced in the United States is used for, also has dropped, resulting in less demand for corn.
Cotton demand has fallen as well, according to the report, due to a 79% decrease in retail clothing sales; the cotton market may not stabilize until 2021.
AM Best notes there is an oversupply for many different food products with no room for storage, as demand has fallen due to COVID-19.
When schools and restaurants began to shut down, dairy farmers around the country had to dispose of thousands of gallons of milk, with many farmers spilling out 15,000 gallons of milk a day.
About 60% of crops such as potatoes go to the food service industry, and the closure of many restaurants has resulted in storage problems; a massive oversupply of potatoes is expected in the fall.
Many farmers are also throwing away flowers as demand has dropped so drastically that prices were 22% lower in May 2020 than in May 2019.
In addition, August saw a powerful derecho pass through Iowa, causing extensive damage in the region, as well as Hurricane Laura, which was followed by Hurricane Sally in September, all of which will impact yields.
