In agriculture, when a lack of rain combines with very high temperatures and sunny days, the rapid dryness is called a “flash drought.” Well, this economic downturn related to fears about the coronavirus pandemic could be a flash recession, said Scott Irwin, an agricultural economics professor at the University of Illinois.
Irwin, along with four other professors from the University of Illinois Agricultural and Consumer Economics department, addressed how the coronavirus pandemic could affect agriculture in the Midwest in a webinar on Friday.
“What we’re all trying to analyze and game out is, ‘where do we go from here?” Irwin said.
First reported in December, there are now just over 272,000 confirmed cases of coronavirus worldwide as of Friday evening— including more than 19,100 cases in the U.S., according to data collected by John Hopkins University.
Since the highly-infectious respiratory illness was declared a worldwide pandemic on March 11, U.S. federal and state officials have made moves to limit its spread, including closing down schools, restaurants and bars, cancelling large events and encouraging people to practice "social distancing" by keeping at least 6-feet away from others.
Some states have imposed shelter-in-place orders for its residents, including California and Illinois. This requires residents to stay home, except for ‘essential business’ such as buying food and getting prescription medications.
The federal government is also debating a stimulus plan to avoid a recession.
A recession is technically two consecutive quarters of negative growth, but Irwin said the second quarter of 2020 could “without wanting to sound too extreme” could be “of a dimension of something like the Great Depression.”
So far, cattle prices have gone down in concert with the stock market, for an overall downturn of about 30 percent. Grain markets have fared much better relative to other markets, which are down about 15 percent.
It’s not clear if the downturn will last once the world gets moving again, Irwin said.
Still, for farmers who are planning months out, the uncertainty raises a lot of questions. Here are some of our takeaways from the webinar.
Farm inputs appear to be OK, workforce bigger question
For farmers preparing to plant, fertilizer, seed and chemicals appear to be in place, said Gary Schnitkey, an agricultural economics professor.
“Most of that which is going to be used this spring is already here,” Schnitkey said. “That’s not a huge concern right now.”
Additionally, acreage shifts between corn and soybeans don’t appear to be warranted at this point, he said.
The workforce is a bigger question, he said, especially for farm workers and processing plants.
Schnitkey told the audience that they should not work with COVID-19 and they should not let employees work if they are sick, either.
Food demand not expected to be impacted, supply chain could be the issue
In a pandemic, people still have to eat, but how they get that food could change, with restaurants closing nationwide.
“It’s not likely to change overall food demand, but it’s not optimal for what is going on in agriculture,” Schnitkey said. “You don’t make these big changes in the way food is delivered and expect it to go well and smoothly.”
There is plenty of food, but with people hoarding certain items, it creates supply chain issues, Schnitkey said. Shifting food from restaurants to grocery systems is likely going to be a lot of work for the transportation and food industries, Schnitkey said.
“We’ve got to give them time to work through those things,” he said.
Challenges will likely be localized, said Jonathan Coppess, director of the Gardner Agriculture Policy Program and clinical assistant professor. Coppess formerly served as administrator of the USDA’s Farm Service Agency.
There could likely be spikes in prices for certain items or grocery stores rationing certain foods. Eventually those will get smoothed over.
“We can reasonably anticipate some choke points,” Schnitkey said.
Processing plants are one of the most likely, especially if workers at a facility see an outbreak of COVID-19.
“One question remains, ‘how will processing plants respond when workers have COVID-19?’” he said.
With government efforts focusing on slowing the spread, rather than stopping it, it’s “very likely we will get it at some sort of processing plant,” Schnitkey said. That could lead to spiky and erratic prices in some areas.
The items that need to be prioritized during the outbreak are perishable food items, like meat, dairy, eggs and produce.
“We have to keep them moving,” Schnitkey said.
The issue for now is hoarding, said Todd Hubbs, a clinical assistant professor for the agricultural commodity markets.
“I think this recent panic buying seems like a natural reaction from human beings when we get in these types of situations,” said Hubbs. “It’s not a supply chain issue. Consumers are changing their behavior. Our system is not set up to make large changes that quickly.”
Ethanol could be one side effect, too early to know about federal programs
With oil prices crashing and fewer people traveling, demand for corn for ethanol could be one byproduct of the downturn, Schnitkey said.
Hubbs said a two-month downturn in travel could be 120 million to 150 million bushels of corn. But even in these times, demand for food will still be there.
“It’s important to remember the elasticity of demand for food products is relatively low,” Hubbs said. “People still need to eat.”
How that will affect long-term prices remains to be seen. It is way too early in the crisis to know whether federal economic assistance will go to farmers, Coppess said. It’s also unclear if the $1 trillion stimulus plan being discussed in Congress will go to farmers.
“There are lots of unknowns,” Coppess said.
For the federal government, priorities will be food products, like dairy, livestock and eggs. Those priorities could potentially include ethanol, as well as discussions around acres, Coppess said.
For grain farmers, there is a strong safety net already in place, Coppess said.
China trade deal, light at the end of the tunnel?
The economic downturn caused by coronavirus could end up with China not making its Phase 1 trade deal commitments to buy U.S. agricultural products, said Nick Paulson, associate professor.
“China may make every effort they can to meet those agreements, but they’ve got a number of things working against them this year,” Paulson said. Those include a strong dollar and low commodity prices.
So far, Chinese purchasing is down, Hubbs said, but China appears to be recovering economically. That could help cushion losses in the grain market.
“All signs are they’re beginning to reemerge,” he said.
As China seeks to build up its hog herds, they will need to purchase soybeans, Hubbs said. Another aspect working in Midwest farmers’ favor is that the U.S. supply chain is likely more resilient than the South American supply chain.
South Korea and Japan will also continue to recover economically and need to purchase food, he said.