Could slow global economic growth and recovery from trade disputes

As countries affected by the coronavirus try to control its spread, market and public reactions to the fast-moving situation have sent ripple effects to people in agriculture and the food business.

“The concern for ag is the impact on demand,” said Joel Karlin, market analyst for Western Milling in Tulare County.

Many analysts agree effects of the virus could slow global economic growth and recovery from trade disputes between the U.S. and China that have hurt agricultural exports.

A University of California agricultural economist, Dan Sumner, said he expects reduced exports to places hard hit by the virus, and said loss of income in those places will further curtail export demand on a longer term.

With people limiting travel and hunkering down due to fears of COVID-19, the disease caused by the virus, Karlin said businesses such as restaurants, hotels, resorts and airlines will feel immediate effects that will bleed into the food and agriculture sectors. He noted that commodity markets including livestock, dairy, grain and oilseeds have already taken a hit.

If people are not going out to eat as much, he said, demand will soften for products such as cream, butter, higher-priced cuts of meat and other food items that are usually consumed at restaurants. Though dairy farmers will benefit in the short term from lower feed prices, it will be “more than offset by the drop in dairy prices,” he added.

The recent plunge in the live cattle market and hog futures also indicates worries of declining demand, especially for beef, which is “dependent on discretionary spending,” Karlin said.

There is also market anticipation that the large-scale purchases to which China committed under the Phase 1 trade agreement with the U.S. will not happen until late summer or fall. That agreement was viewed as “comprehensively positive” for meats, Karlin noted, as China has faced a shortage of hogs due to African swine fever.

“China would really look to import a large amount of meat and it hasn’t happened,” he said, noting shipping difficulties due to quarantines related to the virus.

Because of continued quarantines in China, problems remain for unloading shipments at docks, transporting goods to domestic destinations and delivery or pickup of those goods for consumers, said Carl Larry, market development performance director for New York-based Refinitiv, which provides financial market data. California agricultural exporters continue to report a shortage of shipping containers at U.S. ports bound for China, from which exports have plunged, leaving fewer ships and containers available to make the return journey.

“While we are still trying to figure out the passing of this virus, there may also be complications from foreign ships headed into quarantined areas,” Larry said. “We can see the current travel bans increasing as an example of how global supply may be affected in general.”

Sumner said impacts of the virus may encourage a cooling of trade tensions and “tariff-caused turmoil when politicians here and elsewhere realize we need to work together to keep the damage to a minimum.”

With energy markets also taking a hit, farmers could expect less expensive fuel heading into spring planting, Larry said, adding that if demand for agricultural goods slows, the need for diesel and propane may also decline. He suggested farmers look to storing more fuel and locking in fuel costs as they would hedge their agricultural production.

Ben Palazzolo, manager of the Pacific Coast Farmers Market Association, said he hasn’t yet noticed a drop in attendance at markets, but acknowledged it’s still early and “there’s potential for some slowing down of traffic” if there’s perception in the community of increased risk.

“People are talking about it, but it’s not like a ghost town at any of our markets,” he said. “That situation could change in a week or two, as another news headline breaks somewhere.”

He noted that market vendors already follow food-safety and health-code regulations that require washing stations for utensils and the use of tongs or gloves to distribute food samples to customers. Market operators will now make available extra hand wipes at information booths, he said, though he noted buying such supplies has been a challenge due to increased demand and shortages at stores.

In terms of impacts on the farm, San Joaquin County farmer Dan Van Groningen said he has not implemented any changes, as most of his crew is doing field work and limited people are in the packing shed at this point in the season. Being in the produce business, he said he also has not yet seen any major market impacts to the crops he grows, which include melons, pumpkins, squash and tree nuts.

Concerns about COVID-19 did cause organizers to postpone the Natural Products Expo West in Anaheim that one of his employees was planning to attend last week, Van Groningen said. The annual food show would have allowed his company to promote its watermelon juice and meet with potential buyers, he said, though he noted his employee “wasn’t very enthused about going herself” due to anxiety about the virus.

Expo organizers said they made the decision to postpone after feedback from exhibitors, suppliers and other would-be attendees. Most of the show’s Chinese exhibitors had already pulled out, they said, and other companies also canceled or were planning to reduce their presence. Organizers said they plan to announce a new date for the convention in mid-April.

The California Prune Board, which had already postponed a trade mission to China and Hong Kong scheduled for April, has now postponed a trip to Japan, which has seen a rise in coronavirus infection rates. Board spokeswoman Kiaran Locy said the decision was based on advisories from market representatives in Japan and the Japanese government itself “to avoid unnecessary travel and putting people in uncomfortable situations.”

“It was out of respect for the concerns of our trade partners and growers that we felt it was best to postpone the trip,” she added.

Source: California Farm Bureau Federation