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Ag trade in a post-coronavirus world
INDIANOLA, Iowa -- U.S. agricultural trade policy, China's push to reconfigure international supply chain lines, the entrance of Brazil and Ukraine into the commodity export markets, and the coronavirus pandemic have all disrupted the once relatively stable U.S. corn and soybean export markets.
Researchers are already exploring the policies and fundamentals impacted by the coronavirus
Joe Glauber, International Food Policy Research Institute, says that there are obvious impacts to U.S. agriculture due to the coronavirus, and then there are more longterm effects.
Obviously, the direct impact on the health of farm labor and workers in the meatpacking plants rise to the top. Also, disruption of supply chains causing rising retail prices as producers prices fall.
"We're seeing a huge decline in projected motor fuel use," Glauber told a Farmdoc webinar audience in May. As a consequence, ethanol plants are shutting down."
Hopefully, we will start to see global gasoline consumption markets rebound as the recovery from coronavirus comes in, but only symbolic purchases of U.S. ethanol are expected by countries like China this year.
U.S. ethanol production will make a comeback once the domestic consumption of gasoline recovers, Glauber says.
"Once the coronavirus disruptions are over with, hopefully global trade will return too. If we start to see U.S. demand for motor vehicle use come on at the 130 billion gallon range, then we could start to see ethanol production come on. The corn is there obviously, and that is an even bigger issue," Glauber says.
Glauber noted that the coronavirus will cause recessionary impacts on income too.
The International Monetary Fund estimates the 2020 U.S. gross domestic product declining 6.0%, only to snap back in 2021 to 4.7%.
Regarding global trade, if history tells us anything about the future, during the 2008 financial crisis, agricultural products fared much better than fuels and mining products and manufacturing sectors, Glauber says.
This recovery could look a little bit like the 2008/2009 recession, the researcher says.
"During that crisis, ag products saw a 12.1% decline in value and a 1.8% drop in volume vs. a 35% drop in value for fuels and mining products and a 19.9% drop for manufacturers," Glauber says.
The estimated impact of the coronavirus on global trade in 2020, depends upon the type of economic recovery.
Under a v-shaped recovery scenario, agricultural products could drop by 6.5%, vs. a u-shape recovery loss of 11.2% (people stuck at home for 6-months) and a l-shape recovery loss of 12.7% (people stuck at home for 12-months), according to the World Health Organization.
Meanwhile, the less covered issues and challenges for U.S. agriculture, as a result of the coronavirus pandemic, cannot be forgotten, according to Glauber.
"If it weren't for coronavirus, we would be talking about many of these things today," Glauber says.
"We have a new NAFTA agreement (USMCA) that is supposed to be going into effect July 1. There are a lot of people asking if we can put this off (especially in the automotive sector) as companies fight supply problems. The White House officials say that they are going forward," Glauber stated.
Also, the U.S., China trade agreement is facing hurdles. Due to coronavirus, Glauber doesn't see China being able to successfully meet its phase one agreements of buying U.S. ag products.
"Also, supposedly, phase two of the agreement was to take on the big issues that got us into the trade war in the first place. This includes the intellectual property issues, the business trade issues. I think a lot of people don't believe these discussions are going to happen before the (U.S. Presidential) election.
The bilateral agreement between the U.S. and Japan was supposed to be going into phase two negotiations. For agriculture, U.S. rice and dairy producers want to be included in that trade agreement with Japan.
The U.S. has longstanding negotiations with the EU on ag trade, as well.
"I just don't see much happening before the end of the year, with everything else going on (with coronavirus)," Glauber says.