Rural industries are grappling with how to adjust their businesses to remain relevant and sustainable in the face of the coronavirus pandemic. Agricultural supply chains have been massively disrupted and lost revenue. Water and power suppliers have adapted as commercial customers went dark and demand shifted to residential customers.
According to a new Quarterly report from CoBank’s Knowledge Exchange, the recent rebound in the U.S. economy is real. But the sharpest post-shutdown economic gains are almost certainly behind us; a long grind to shore up a shaky economy lies ahead.
“Economic data prior to the recent resurgence of coronavirus cases has shown a consistent steady improvement in the U.S. economy, coinciding with business re-openings,” said Dan Kowalski, vice-president of CoBank’s Knowledge Exchange division. “But traditional economic data can go stale remarkably fast in the COVID era, making high-frequency economic indicators an essential tool. And those indicators are signaling a plateau, followed by a possible downshift in the economy.”
U.S. grain has been moving despite COVID-19; basis has generally tightened since April 1. Wheat-export activity has been strong and domestic demand has been healthy as home-bound consumers buy more packaged food. China has been buying U.S. grain although the run rate is at less than the levels agreed upon in “phase one” of the trade deal. Sorghum exports to China have been especially robust; sorghum basis has tightened meaningfully in response to strong export demand.
Farm-supply retailers benefited from a healthy spring agronomy season and are well-positioned for the remainder of the growing season. Crop progress has been better than average amidst favorable weather. The U.S. Department of Agriculture rated about 70 percent of corn, soybean and spring-wheat crops as good-to-excellent in its June 29 report. A surprise ruling against dicamba could have long-term implications for crop-protection sales and advice.
Ethanol production and margins began to recover during the second quarter as U.S. economies began to reopen. But coronavirus is resurging in several states; renewed activity restrictions will potentially reduce driving and fuel demand. Looking ahead to 2021, ethanol fuel demand may recover to only 85 percent to 90 percent of pre-COVID levels.
U.S. chicken plants endured far less COVID-19 disruption in the second quarter than beef or pork. The chicken sector swiftly filled retail meat cases when demand shifted from food-service and red-meat supply decreased. Chicken producers have been able to manage through their production disruptions but demand and prices have been volatile. CoBank analysts expect about 3 percent industry growth for the sector in 2020 because its value-proposition may appeal to U.S. consumers facing a difficult economic outlook.
Beef-packing-plant capacity decreased to historic numbers in late April, spiking the cutout value to record numbers. Beef production and prices have now returned to pre-pandemic levels. Concern within the beef sector is now shifting from supply to demand. Food-service traffic has improved but many social-distancing restrictions remain. That means ongoing challenges for the dine-in full-service sector, which especially hurts the beef complex.
The pork industry has rebounded from a supply-chain shock that saw U.S. production decrease by almost half, before increasing back to better than prior-year levels two months later. Pork production in the last week of the quarter increased to 10 percent more than the same week a year ago as the industry is beginning to work through the backlog of hogs. Second-quarter pork exports remained strong.
Dairy producers and processors struggled through extreme market volatility this past quarter due to COVID-19. Milk, cheese and butter prices decreased to multi-year worst numbers on steep losses in food-service demand and record milk production. Cheddar-block prices bounced to records on restaurant restocking, increased demand from pizza chains and government purchases. Milk and butter prices also recovered. But many farmers didn’t benefit from better milk prices this past quarter because of negative producer price differentials.
China took the headlines in cotton as the standout overseas buyer for the quarter, helping lift cotton prices from the multi-year worst prices in March and early April. As China strives to fulfill phase one commitments, its imports of U.S. upland cotton at the end of June increased 50 percent from the previous year’s pace. Outstanding sales of unshipped cotton more than quadrupled year-over-year.
COVID-19 continues to snarl supply-chain logistics with specialty-crop growers fearing further losses in food-service demand as the pandemic resurges. Growers that have contracts with grocers and retailers have fared better. Domestic demand for tree nuts like almonds, walnuts and pistachios has been robust as consumers stockpile shelf-stable foods. Another record-large almond crop is expected as harvest begins in the weeks ahead, putting greater focus on the U.S. tree-nut-export program.
Most rural-telecommunications operators signed the Federal Communication Commission’s “Keep Americans Connected” pledge, which includes not disconnecting service for customers who cannot pay their bill due to COVID-19-related economic stress. Offering free service has strained rural-operator cash flow, which could impact future network build plans.
The U.S. energy sector is accustomed to volatility in supply but not profound changes in demand. For the first full month of COVID-19 stay-at-home advisories, April data shows U.S. electricity-system peak-demand levels hit 12-month record-setting small numbers, with net electricity generation decreasing 6.7 percent year-over-year. Demand recovery to pre-pandemic levels will be slow; the longer road to recovery makes it more likely that structural change is inevitable.
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