When there is an unknown threat such as the Wuhan coronavirus it is hard to forecast what will have the biggest global economic impact, the disease or the effort to contain it.
This is an agricultural markets column so let’s focus on how the futures markets are reacting.
The first cases in China were detected at the end of December and the Wuhan market was identified as the outbreak hub on Jan. 1 so the story so far is limited to January.
As the month closed out, soybean futures had fallen 8.5 percent, with most of the drop coming in the second half of the month as it became clear the sickness and efforts to halt its spread would make it difficult for China to quickly start buying large amounts of American agricultural products as promised in the new China-U.S. trade deal signed Jan. 15.
China already has restrictions on imports of Canadian canola but the slide in soybeans washed over into canola. The nearby contract ended the month down 5.6 percent.
Nearby hog futures fell about 20 percent. Again, the biggest drop came at the end of the month. The question of whether the coronavirus and quarantine would limit China’s meat imports was a factor in the price collapse, but another key reason came from American researchers announcing they had developed an effective experimental vaccine against African swine fever, the disease that has devastated China’s hog herd.
Cattle futures were less affected, dropping about three percent on the month.
Minneapolis spring wheat futures fell more than five percent on the month, pulling back quickly from the multi-year high hit on Jan. 22.
It is difficult to assess the implications of the disease given the incredible speed of developments: from the virus identification on Jan. 7 to the first registered death Jan. 11 to the identification of cases outside of China, to the Wuhan quarantine on Jan. 23, to the World Health Organization on Jan. 30 declaring the virus a global health emergency.
In addition to the quarantine in and around Wuhan, China has put limits on a lot of travel and extended the spring holiday period. Also, travel to and from China is rapidly shrinking as airlines cancel flights and Russia closes its land border.
It is a stunning response to a disease and likely necessary to prevent panic.
But we should also be wary of an overreaction. There might be 10,000 confirmed cases in China and more than 200 deaths, but that is in a country with 1.4 billion people.
Although the Wuhan coronavirus has already been diagnosed in more people than the SARS infection was 20 years ago, it so far appears to be less deadly.
And we must be aware that even the common flu virus takes a large toll every year.
For example, in the United States, a country with about a quarter the population of China, in 2018-19 the Centers for Disease Control estimated that 35.5 million people got sick with influenza, 16.5 million saw a health-care provider for their illness, close to 500,000 wound up in hospital and there were 34,200 deaths.
That was a pretty average year and yet imagine the panic that would build if the news media had daily headlines tracking common influenza death tolls.
In 2003, SARS was a huge threat in the first half of the year, but by the summer it had mostly been contained. A few cases were reported the following winter but they barely made headlines.
SARS’ effect on China’s economy was significant, but temporary. Gross domestic product in the first quarter of 2003 fell by two percentage points.
Back then China’s economy was much smaller and had less impact globally.
Today, it is the world’s second-largest economy and is deeply integrated into international trade flows, including agriculture.
Narrowing our focus to oilseeds alone, at the time of SARS China’s soybean imports of 16.9 million tonnes were nine percent of global soybean production. This year, the country is expected to import 85 million tonnes, or 25 percent of world production.
In the time of SARS, China did not import meat but beginning last year meat imports began to soar to some six million tonnes, according the China’s ministry of commerce, because of the protein shortage caused by the ASF disaster in the hog herd.
In other words, because China’s economy is bigger with bigger links to the world there is more on the line today, economically speaking, than in the 2003 SARS outbreak.
But I expect that like in 2003 this will be a short-term issue.
China is reacting with great speed and enormous resources this time. It is being exceptionally open with the world, sharing information and working collaboratively with international health authorities.
Like with SARS, the infection will likely fade as the weather warms into summer. The quarantines and travel restrictions will end.
Some sectors, such as tourism, will suffer losses that can’t be recouped, but people have to eat and ultimately China’s food imports will resume.