USDA economist believes economy will get worse before it gets better
U.S. Department of Agriculture’s Chief Economist Robert Johansson said when he was making presentations in February about the state of the farm economy, he saw more positive than negative. But now as it turns to April, he’s not as sure—especially after the coronavirus pandemic has swept the country.
Johansson said debt had been reaching historic levels, but interest rates remained low. This allowed more interest repayment capacity than last year. The debt-to-asset ratio rose slightly to about 15%, but “certainly below the levels that we saw back in the 1980s.”
That was just over a month ago. Johansson is now looking at the forecasts from the private sector for the second quarter of U.S. gross domestic product growth.
“Significant declines across the board,” he said. “Estimates from the different private sector groups has been actually getting a little bit more dire.”
It’s starting to become significant, as he expects second quarter GDP to be reduced by as much as 25%.
By the end of April 2, the jobless claims jumped to 6 million individuals.
The S&P index remained high compared to historic averages, but he said it’s taken a big hit too. The supply chain for food and agricultural products has been affected too.
Johansson said even though the United States economy is facing some challenges, a lot of other market economies are sustaining significant impacts.
“That’s translating into a stronger dollar, which will have implications for agricultural trade going forward,” he said. “If we look at food and ag sector businesses on the market we can see that in some cases, they’ve noted some fairly substantial declines in their stock price.”
One of those is ethanol. Demand and margins have fallen as has gasoline and diesel demand despite the decline in price. Johansson expects to see much lower gasoline sales in 2020, leading to the amount of ethanol blended into gasoline.
As for commodity futures, wheat and rice have shown some strength in the market, but looking at other commodities’ futures prices, particularly in livestock categories and cotton, their numbers have declined “fairly dramatically over the last three months.”
With that being said, a very big corn crop is expected—some 97 million acres to possibly be planted.
When looking at how things have changed in terms of corn and soybeans, in particular, basis is weaker in the Dakotas relative to Illinois. A lot of this has to do with the weather-influenced prevent planting last year.
There has been some basis decline in some areas, and strength in others. And he expects there to be some changes as China starts buying more soybeans.
There was some optimism at the beginning of the year with the trade deal with China, but Johansson has seen some declining signals in several indices he tracks—the Dow Jones Industrial Average, the Rural Main Street Survey, housing markets, and commodity prices.
“We would expect that, generally speaking, the ag barometer responses from producers will also track downwards here in the next period,” he said.
During the Great Recession of 2008-09 in the U.S. and globally the following year, there was a pretty substantial decline in food expenditures—about $25 billion in that period between the low point in 2009 relative to where it was in 2008. Same goes for cattle, cotton and dairy cash receipts, leading into the recession.
“I think it’s fairly indicative of what we might see. If not only U.S., but global, GDP growth slows and or declines significantly in 2020,” Johansson said. “And then we would of course expect a relatively quick recovery following the development of more treatments and such moving out into 2021 and 2022.”
Kylene Scott can be reached at 620-227-1804 or [email protected].
