Covid a Year Out From 30,000 Feet

It’s been brutal. A year ago, today, the WHO declared a world-wide pandemic and you know the rest of the story. A year later we have over 530,000 people dead from Covid 19 in the United States and over 22,000 dead in Canada. It was certainly foreboding a year ago, At the time the Canadian federal health minister said that 30-70% of Canadians would get Covid 19. When I read that, I remember, thinking, ok, how do I survive this. It’s going to be a real battle.

A year later vaccines are here, but not in the numbers they have in the US. It’s still a battle, but we are being offered hope of a more normal life in the months ahead. I still feel under siege. However, our Prime Minister has promised all Canadians who want a vaccine will be able to get one by the end of September. As I’ve said in earlier columns, maybe by harvest time, that new day will be here.

Let’s leave it there and hope we get there. As we all know, there has been so much more to Covid than the disease itself. A year ago, we didn’t know, with agricultural markets tanking, what would be next. Who knew, soybeans would be about $5 higher today than last year and who knew, that governments would add huge amounts of government stimulus trying to defend against an invisible enemy in the form of a virus. A year out, the money is being spent and figuring out what this means to our agricultural economy going forward is anybody’s guess.

How much money is it? Well, we’ll get to that later, but to give you an idea, the Canadian federal deficit is about 10 times the size of what it was in December 2019. We are looking in Canada at about a $343 billion dollar deficit. If I had mentioned that at Christmas 2019, most of you wouldn’t have believed. Much of it had to do with Covid relief, so Canadians could keep going when many were locked away at home.

This past week, we saw the latest $1.9 trillion dollar proposal by President Biden get approved by the Senate in the United States. When you put that on top of past Covid relief measures, it adds up to unprecedented stimulus into the greater economy. Keep in mind, it’s not only the US and Canada that are spending to limit the pandemic damage. All western countries are doing it as well as many other third world countries. Intuitively, it means, the world is being injected with capital, at a time when it needs it to fight Covid. The question is, what happens next?

More specifically, what’s this mean to our agricultural prices? Is $7 corn and $17 soybeans in Ontario partly derived because there is an infusion of capital into the global monetary system? Is there a lot of new money injected into global capital markets looking for a home. Does this inherently create inflation, which may ultimately show up not only in our equity markets, but also the agricultural commodity markets too.

I don’t really have a good answer to this one. However, I cannot ignore the amount of money sloshing around the greater economy. You can add another $40 billion dropped on the American farmers for Covid and trade relief over the last couple of years in the United States. Ontario land rents for growing corn in 2021 are running north of $500 an acre in some districts. Farm inputs are inflating. Will this mean ultimately that grain and livestock prices will inflate to new multi-year trading levels too?

There is something to this. However, it doesn’t take into consideration the vicious cycle of agricultural productivity. 300 bushel per acre corn in 2021 doesn’t lend itself to consistent $7 corn prices. Needless to say, there are copious amounts of capital, which has been printed around the world over the last year. Covid relief was a very noble cause, but at the end of the day, this capital will have to find a home.

The agricultural economist in me keeps thinking about inflation and interest rates. However, our central bankers have assured us, there will be no interest rates hikes until at least 2023 and the Bank of Canada’s inflation target remains below 2%. Meanwhile the Bank’s overnight rate remains at 0.25% and inflation is currently 1%. It all just simply makes me think hard.

I want Covid to end, in fact, I can’t wait to get back to normal. In the meantime, its social distancing, wearing masks and hopefully queuing up for a vaccine. That’s what’s happening on the micro level. However, from 30,000 feet, the world’s money spigots have been in overdrive. I hope it all comes together, but there will surely be long term agricultural economic impacts which we can’t see now. The challenge will be to forge ahead, just like we did a year ago.