COVID-19 Will Create a Lot of Monday Morning Quarterbacks

The Decisions Made During The COVID-19 Outbreak Will Be Studied for Years to Come.

 

By David Widmar, Successful Farming

Agriculture.com - 3/23/2020

 

Black swan. Unchartered territory. Unprecedented. While these terms have been used to describe COVID-19 over the last few weeks and months, they aren’t helpful to decision-makers trying to the navigate weeks and months ahead of them.

 

To consider what lies ahead for COVID-19 and U.S. agriculture, we’ve outlined four key sources of uncertainty and a few thoughts.

 

1.    WHAT ARE POTENTIAL MACRO ECONOMIC IMPACTS?

 

To break this down, one must consider various time frames.

 

In the short run, attention will focus on the duration and magnitude of the current economic constraints in place. The impact of these will be staggering. Goldman Sachs recently forecast a 6% decline in gross domestic product (GDP) for the first quarter and a 24% decline in the second quarter. With this, historically low unemployment rates will surge higher, up to 9% per Goldman’s forecast. Other forecasts are even more bearish.

 

The intermediate run will focus on the recovery of global economies. In the U.S., this will likely correspond with COVID-19 concerns peaking and businesses starting to reopen.

 

In the U.S., the same Goldman Sachs forecast pointed to 10% to 12% economic growth in the last half of 2020. This will create a wild whiplash of economic indicators. Watch how governments respond to the economic headwinds.

 

In the U.S, the Federal Reserve will undertake many different kinds of efforts to stimulate the economy and keep credit markets functioning while Congress will likely provide large fiscal stimulus packages. You can expect a lot of uncertainty both with respect to what will be done and how well anything that is done will work.

 

In the longer run, we should also consider the implications of where the U.S. economy will be in 12 to 18 months. One thing is known: Conditions won’t just simply revert to where they were just a few months ago. There will be lots of changes, but untangling where things might go will take some time.

 

For agriculture, keep the following measures in mind:         

 

    •    Exchange rates – the U.S. dollar has recently strengthened, a headwind for exports.

    •    Interest rates – While the Fed has acted to lower short-term interest rates, longer term rates have turned higher in recent weeks.

    •    Inflation – Will the whiplash of economic activity eventually fuel higher rates of inflation?

 

2. WHERE DO COMMODITY PRICES GO FROM HERE? ... 

 

3. IMPACTS ON DEMAND FOR AG PRODUCTS? ... 

 

4. SUPPLY CHAIN IMPACTS? ... 

 

ADDITIONAL CONSIDERATIONS ... 

 

WRAPPING IT UP ... 

 

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