A new study by the Center for Agricultural and Rural Development at Iowa State University projects economic impacts of the COVID-19 outbreak will mean steep losses for Iowa agriculture, including over $2 billion each for the hog and ethanol sectors, if the disease and social distancing policy impacts hold throughout the year.
As the COVID-19 outbreak lingers, 52 U.S. 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 $34 million for calves and feeder cattle, $213 million for soybean, $658 million for fed cattle, $788 million for corn, $2.1 billion for hogs and over $2.5 billion for ethanol.
"While some of this damage has already been realized, 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) quarreled 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 plant closures are being driven by employee shortages, Hart says. "Plants are closing for a variety of reasons, but for meat processing facilities, the virus outbreaks seem to be the main cause, as it limits the number of workers available," he says.
"The COVID-19 outbreak is presenting an unprecedented situation in the way plants are handling employment changes," Crespi says. "During this economic interruption, as opposed to the financial crisis of 2008, for example, firms are not cutting employees the same ways as before. While unemployment is very high—it has not been this high since the 1930s—some firms are treating this as a temporary change and are keeping employees on half-time or other pay rates."
It is difficult to predict when an economic recovery will come, or what exactly it will look like, Crespi says. "There is so much uncertainty right now. Many people expect jobs to come back once the pandemic subsides, but no one can predict when or how that will work. A breakthrough on a vaccine, for example, could change the outlook very quickly."
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.
For over 60 years, the Center for Agricultural and Rural Development at Iowa State University has conducted innovative public policy and economic research on local, regional and global agricultural issues, combining academic excellence with engagement and anticipatory thinking to inform and benefit society.