April 18, 2020

US state's hog sector might lose US$2 billion on COVID-19

Economic impacts of the COVID-19 outbreak will mean steep losses for Iowa agriculture, including over US$2 billion for the hog industry, if the disease and social distancing policy impacts hold up to yearend.

The new study was done by the Center for Agricultural and Rural Development (CARD) at Iowa State University.

As the COVID-19 outbreak lingers, 52 US states and territories are either encouraging or mandating social distancing policies, which often include closings of nonessential businesses. While these policies are necessary to slow the spread of the virus and ensure human safety, they restrict economic output and demand.

The new CARD analysis, "The Impact of COVID-19 on Iowa's Corn, Soybean, Ethanol, Pork and Beef Sectors," shows potential losses in every examined agricultural sector. The study finds potential damage of US$34 million for calves and feeder cattle, US$213 million for soybean, US$658 million for fed cattle, US$788 million for corn, US$2.1 billion for hogs and over US$2.5 billion for ethanol.

"While some of this damage has already been realised, the majority of the impact comes from the continued slowdown of the general economy and the pricing, processing and distribution of future commodities," according to John Crespi, CARD's director and an author of the study. "To estimate potential losses in agricultural revenues, we examine the price reactions of various agricultural markets during the pandemic and explore the revenue losses indicated by those price movements."

The ethanol and hog industries are likely to be especially hard-hit.

"The ethanol industry, in fact, the entire fuel industry, was already in poor economic shape before the COVID-19 outbreak—energy supplies were high, stocks were building, usage was stagnant, and input costs had been rising before the outbreak, squeezing already tight margins," says Chad Hart, an associate professor of economics and a study co-author. "On top of that, OPEC+ countries (mainly Saudi Arabia and Russia) quarrelled about oil supply levels during the first quarter of 2020, which sent energy supplies higher and prices lower. And now, social distancing restrictions are severely limiting fuel consumption."

Ethanol plants are also currently facing a unique situation, in that the plant closures are not due to employee illnesses. "No ethanol plants have noted worker availability problems due to the virus—economic returns are driving the closures," Hart says.

Other co-authors of the report are Dermot J. Hayes, professor of economics, Keri L. Jacobs, associate professor of economics and Lee L. Schulz, associate professor of economics. All authors are also affiliated with CARD.