Economist foresees recession, but not depression, for Midwest
Agriculture has not been immune to the pain of the pandemic, especially in the livestock sector.
OMAHA, Neb. — The COVID-19 pandemic has been an event like few in history, and it will have a long tail in terms of its economic impact on the country.
However, the effect is and will continue to be more muted in the Midwest versus the coasts, according to Ernie Goss, Creighton University Economist in Omaha, Neb. He says that is because of the dominance of the agricultural industry in the region. Despite that, Goss does not believe it will be a V-shaped recovery.
“No, its looking more like a U at best. Meaning we’re in a sharp downturn. We’re going to move along the bottom for some time. We’re going to be in a recession for two quarters of negative growth,” he says.
Goss also predicts the economic recovery will be slower than the last recession in 2008-09. However, the good news is he doesn’t see the country moving into a full-blown depression.
“Right now, I want to side, for this part of the country, on the side of a recession but a severe recession. It will be more severe than in 2008-2009 recession, which was not as deep here as it was in the rest of the nation,” he says.
Agriculture has not been immune to the pain of the pandemic, especially in the livestock sector. Goss says before COVID-19 he thought the recent trade agreements struck with China, Japan and the new U.S.-Mexico-Canada deal would help heal farms and ranches. He says there was optimism to start 2020 that it would be a better year for agriculture after six years of low commodity prices and a trade war. Now, he predicts an increase in farm bankruptcies, resulting in a structural change in United States agriculture.
“I think more likely we’re going to see large farms buying up smaller farms. So, you’ll see the average farm size increasing and that’s going to be tough for rural economic development," he says.
Goss forecasts a recovery in the farm sector and in commodity prices by the end of the year, if trade and shipping resumes. He says they recently surveyed companies and discovered that 54% were having difficulty with shipping inputs in and outputs out.
“And that’s very important for agriculture and getting those agricultural goods from states like South Dakota, from Nebraska, from North Dakota, to the ports and getting them to China and Asia,” he says.
Economic recovery will also come as consumers return to regular buying and eating habits. Goss says consumers have a short memory, so he believes they will return to normal practices like eating out and traveling.
Congress has tried to stimulate the economy through massive aid packages like the CARES Act, and the Federal Reserve has dropped interest rates. However, Goss says a COVID-19 vaccine would be the most helpful action in boosting the market sentiment and improving the economic outlook. As far as the $23.5 billion of agricultural aid in the CARES Act, Goss says it will be helpful for making farmers and rural economies whole, just like the Market Facilitation Programs did in 2018 and 2019.
“But they really didn’t replace the loss in farm income, and I don’t expect this to replace some of the lost farm income we’re seeing now. We’re seeing weaker grain prices, but the real negatives have come in the livestock sector, and there’s going to be some hurting there,” he says.
The American Farm Bureau estimates from Jan. 14 to April 3, COVID-19 resulted in a 26% to 36% drop in dairy prices, 31% drop slide in hog futures and 25% drop in live cattle futures. Other commodities, like wheat and soybeans, held up much better in the face of the pandemic.