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The pandemic economic ripple

How did the second quarter treat segments in agriculture impacted by COVID-19?

David Kohl, Contributing Writer, Corn+Soybean Digest

August 18, 2020

2 Min Read
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Ca-ssis/Getty Images Plus

The U.S. economy is now moving toward the sixth month of the COVID-19 pandemic. This black swan event was a demand destructor as a result of the shutdown of certain segments of the economy and widespread uncertainty concerning the health impact to everyday citizens. Recently, Dr. Ed Seifried, an esteemed economist, and I teamed up for a joint webcast. We have enjoyed working together for over four decades; however, this was our first virtual event together.

More than 300 lenders attended the virtual event and were polled concerning their thoughts on the shape of the current recession. Dr. Ed presented several possibilities including a V-, U-, W- and L-shaped recovery. He also suggested the possibility of a Nike “swoosh” shape.

The results from the survey found that 53 percent of the lenders thought the recovery would be shaped like a Nike “swoosh.” Twenty-nine percent of the lenders felt the recession would be U-shaped while 9 percent stated a W-shaped recession was likely. A recession that is W-shaped would be an economy in and out of a recession for an extended period of time. At the extremes, 5 percent of the participants checked the box for a quick V-shaped recovery or an L-shaped recovery, characterized by a sharp economic drop with an extended recovery of up to three to five years. I tend to agree with the majority of the people polled that the Nike “swoosh” symbol with a jagged W in the recovery period is probably what is in store.

How has this event influenced various components of the economy? Consumption in the second quarter in the United States was down 34.6%! Other sectors contracting included investments falling 49%, exports down 64%, and imports fell 53.4%. The only upward trend was government spending which increased 2.7%. Overall, the economy was down 32%, which is the largest decline since the Great Depression.

Specific segments of the economy that experienced significant declines included food service falling 34% and clothing decreasing 21%. For those farmers and ranchers who produce for the food service sector including schools, hotels and conference centers, demand destruction significantly influenced the bottom line. In addition, processing concentration, the Achilles' heel of American agriculture, wreaked widespread havoc on profits.

Gasoline and diesel purchases were down 39% in the second quarter. Again, agriculture producers linked to energy through ethanol or other forms of energy production discovered markets withering due to demand destruction.

One bright spot during the second quarter was that Americans saved $3.1 trillion, representing 15% of the economy. This equated to a savings rate of 25%. A close analysis of the savings rate versus consumption patterns in the fall and winter quarters may foretell life after government supports and stimulus.

This black swan event created a big splash with a number of deep ripples in certain segments of the economy that may have a pronounced effect on the depth and duration of the recession, and the extent of the economic recovery.

About the Author(s)

David Kohl

Contributing Writer, Corn+Soybean Digest

Dr. Dave Kohl is an academic Hall of Famer in the College of Agriculture at Virginia Tech, Blacksburg, Va. Dr. Kohl has keen insight into the agriculture industry gained through extensive travel, research, and involvement in ag businesses. He has traveled over 10 million miles; conducted more than 7,000 presentations; and published more than 2,500 articles in his career. Dr. Kohl’s wisdom and engagement with all levels of the industry provide a unique perspective into future trends.

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