Labor and supply chains among the biggest challenges facing essential rural industries

DENVER, April 02, 2020 (GLOBE NEWSWIRE) -- COVID-19 has brought the U.S. economy to a screeching halt, ushering in a recession in the process. For most businesses, the sudden stop to the economy is more jolting than the financial crisis of 2008 and has forced hard, immediate decisions about employees and finances. According to a new Quarterly report from CoBank’s Knowledge Exchange, COVID-19 has also underscored the critically important nature of agriculture and other industries essential to rural America.

“This quarter will largely define the next year in terms of the economy and how severe the damage caused by the coronavirus will be,” said Dan Kowalski, vice president, Knowledge Exchange, CoBank. “Nearly everyone will be impacted to varying degrees and the pace of the recovery will be uneven. But the economy had been on good footing and it’s entirely possible that we can get back to reasonable strength within a few quarters.”

The U.S. grain sector remains stuck in a rut, with pressure on commodity prices, weakening basis for corn and soybeans in some markets, and export volatility likely over the next two to three months. Since 2020 began, corn prices have declined by 12% and soybeans prices have dropped by 7%.

While crop farming fundamentals remain challenging, ag retailers enter the 2020 growing season on relatively stable footing. Retailers are optimistic for a full agronomy season given pent-up demand for fertilizer and crop protection products following last year’s complicated and wet fall application season.

The U.S. ethanol complex is navigating through an extremely difficult operating environment exacerbated by the recent collapse in crude oil and gasoline prices and a virtual overnight evaporation of demand. Several large players have restructured or exited the business, with more expected to do so over the next three months.

The U.S. chicken industry entered 2020 with optimism largely driven by expectations for renewed exports to China. That focus swiftly changed to the domestic market in early March when the spread of the coronavirus dramatically shifted the U.S. market to at-home eating, boosting chicken demand. Chicken production grew 7.7% in the first two months of 2020.

The U.S. cattle complex has seen a swift and sharp decline in the last month following the drop in global equities and oil prices. Since mid-January, April live cattle futures have fallen by approximately 25%. The beef complex profit pool is shifting in favor of packers at the cost of lower feeding margins. The loss of restaurant and foodservice customers due to COVID-19 will test beef prices this spring.

China’s demand for U.S. pork has set export records, but it hasn’t led to strong prices or profit margins. While international demand has been significantly higher than last year, so has U.S. pork supply. Hog producers are expected to realize negative margins through April, before margins turn to positive territory this summer. To realize strong margins, producers will need strong export growth to continue.

Milk prices have fallen precipitously in recent weeks due to COVID-19. The seasonal increase in milk supplies with the spring flush was met with economic weakness in China and other countries, impacting dairy exports. School closings have impacted fluid milk consumption. Home stockpiling has provided some price support, but not enough to offset the losses related to food service.

Despite strong exports, cotton prices have sunk to new lows on fears of slower global economic growth. U.S. cotton exporters are optimistic of faster export pace following India’s announcement of lockdown into the first half of April, which may impair India’s cotton export pace. Meanwhile, rough rice futures surged to new highs, driven by a surge in retail rice sales and tighter global stocks.

U.S. specialty crop growers are fearing an even tighter labor situation unfolding this spring as processing of new H-2A visa applications in Mexico is impaired by COVID-19 complications. Specialty crops growers have benefited from the surge in produce sales at grocery stores but saw reduced exports due to logistical issues related to COVID-19.

Broad segments of the power and energy sectors are likely to realize falling revenues in Q2 2020 and possibly beyond. Electric utilities will suffer from weakening electricity consumption by the commercial and industrial sectors. Rural water systems will also face challenges during the economic downturn.

The full Quarterly report is available on cobank.com. Each CoBank Quarterly provides updates and an outlook for the Global and U.S. Economic Environment; U.S. Agricultural Markets; Grains, Biofuels and Farm Supply; Animal Protein; Dairy; Other Crops; Specialty Crops and Rural Infrastructure Industries.

About CoBank

CoBank is a $145 billion cooperative bank serving vital industries across rural America. The bank provides loans, leases, export financing and other financial services to agribusinesses and rural power, water and communications providers in all 50 states. The bank also provides wholesale loans and other financial services to affiliated Farm Credit associations serving more than 70,000 farmers, ranchers and other rural borrowers in 23 states around the country.

CoBank is a member of the Farm Credit System, a nationwide network of banks and retail lending associations chartered to support the borrowing needs of U.S. agriculture, rural infrastructure and rural communities. Headquartered outside Denver, Colorado, CoBank serves customers from regional banking centers across the U.S. and also maintains an international representative office in Singapore.

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800-542-8072
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