Sponsored By

Study projects dramatic losses for Iowa’s hog, ethanol sectors

State could see around $6 billion in COVID-19-related losses to agriculture sector if disease-related policies remain.

April 16, 2020

3 Min Read
Hog farm barns pigs FDS operation.JPG
National Pork Board

A new study by the Center for Agricultural & Rural Development (CARD) at Iowa State University projects that economic impacts of the COVID-19 outbreak will mean steep losses for Iowa agriculture -- including more than $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 closing non-essential 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 & Beef Sectors,” shows potential losses in every examined agriculture sector. The study found potential damages of $34 million for calves and feeder cattle, $213 million for soybeans, $658 million for fed cattle, $788 million for corn, $2.1 billion for hogs and more than $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 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,” said Chad Hart, an Iowa State 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 said.

Other plant closures are being driven by employee shortages, Hart said, noting, “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.”

“The COVID-19 outbreak is presenting an unprecedented situation in the way plants are handling employment changes,” Crespi said. “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 said. “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,” he noted.

Iowa State economics professor Dermot Hayes and associate economics professors Keri Jacobs and Lee Schulz also contributed to the study.

Subscribe to Our Newsletters
Feedstuffs is the news source for animal agriculture

You May Also Like