Potential Impact of the Novel Coronavirus on U.S. Agriculture

Published on: 08:22AM Mar 16, 2020

Potential Impact of the Novel Corona Virus on U.S. Agriculture

We now know that the first case of the viral disease that is has been labeled as Covid-19 was detected in Hubei province in China in mid-November of last year.  Initially, it spread slowly, and was not officially identified as a new disease.  The government of China evidently suppressed early reports of how serious the outbreak was.  The government did not publicly acknowledge that the virus was being transmitted from person to person until mid-January of 2020, at which point it began to lock down the population in the city of Wuhan where the outbreak originated, with a population of 11 million, and several other large cities in Hubei province.

The first confirmed cases of this disease outside of China were found in Japan, South Korea, and Thailand around that same time.  As of March 15th, there were more than 150,000 confirmed cases of Covid-19 in 118 countries, with more than 5,700 deaths. To date, about 60 percent of those cases have been detected within China, but the new infection rate in that country has dropped significantly over the last few weeks, while it is accelerating elsewhere around the world.

This outbreak, which the World Health Organization determined to have reached “global pandemic” status on March 11th, has already caused significant economic disruption around the world, and is likely to continue to do so for some length of time, additional weeks if not months.

On March 6th, Bloomberg Economics published its estimates of global GDP growth based on four scenarios with varying degrees of spread of Covid-19.  The hit to global GDP ranged from a minor hit to global GDP with the disease mostly limited to China, to an estimate of zero growth in global GDP in 2020, with the United States, the Euro zone, and Japan all suffering economic contraction in the event of a global pandemic.  Unfortunately, at this point, we may be on track for something close to that worst scenario.

If global economic growth softens to this degree, it is likely that import demand for U.S. agricultural products will suffer, although it is too early to estimate the magnitude of such losses.  Official USDA data on agricultural exports are only available through January 2020--February shipments will not be incorporated until the middle of April.  Serious concerns had been raised about the prospects of China not being able to meet their commitment to increase their imports of U.S. agricultural products under the Phase 1 trade deal signed in mid-January, even before the Chinese economy was disrupted by the Covid-19 outbreak.  Large-scale manufacturing activity was largely shut down for several weeks across China, and is only now starting to get back into operation.  China’s official purchasing managers’ index fell from 50 to 37.5 between January and February.

Last week, a meeting of the world’s largest oil producers broke down over a discussion as to whether to reduce petroleum output to prop up prices as the global transportation sector retracts due to the Covid-19 outbreak.  The Saudi government retaliated against the unwillingness of the Russian government to go along with that proposal by announcing a decision to raise their daily output by April and seek to deliberately undercut Russian exports by selling their oil internationally at $25 per barrel, which is below Russia’s cost of production. 

Despite the resulting lower gas prices, overall gas demand is likely to fall in the United States, as social distancing needed to slow the outbreak also slows a range of business activities.  These developments would hurt the U.S. biofuels sector but should also reduce fuel costs for U.S. farmers who are just beginning to plant their spring crops.

Over the last few weeks, the U.S. and global stock markets have been swinging wildly due to uncertainty about the economic impact of Covid-19 over the next several months.  In a surprise move, the U.S. Federal Reserve Bank lowered  its benchmark interest rate by a full percentage point on Sunday, March 15th, down to around zero percent.  This action should reduce the interest cost of farm operating loans, if farmers can get them in the face of persistent low commodity prices.

Farm labor availability was already an issue in some parts of the country in 2019.  Guest work visas for farmworkers under the H-2A program hit a record level of 257,000 in 2019, but stories abounded in the agricultural press about farmers unable to find enough workers to harvest their crops or care for their animals.  It is too early to prognosticate about the farm labor supply for 2020, but it is difficult to imagine that more working-age immigrants will be coming over the border this year, either legally or illegally, with the incidence of Covid-19 in the United States far greater at this point than for our Mexican and Central American neighbors.

According to the 2017 Census of Agriculture, 1.15 million American farmers were over the age of 65 as of two years ago, accounting for one-third of all farmers.  Although the majority of U.S. cases of Covid-19 detected so far have been found in urban or suburban areas, it is likely that this tilt is at least partially due to the restrictive criteria used in many states to test individuals since testing capacity has been so limited to date.  If the virus continues to spread across the country, now found in every state except West Virginia, then older farmers are at risk of serious illness.  If the Covid-19 peak comes within the next several weeks, such illnesses could affect spring planting progress in hard-hit areas.