The Van Trump Report

Rural America’s Resilience Amid Coronavirus

Rural America has been impacted at every level over the past four months amid the coronavirus pandemic that, unfortunately, maybe far from over. The latest update from CoBank’s Knowledge Exchange indicates that the initial surge in economic activity experienced as cities and states came out of lockdown in May and early-June might have plateaued. Still, CoBank believes rural industries have a chance to bounce bank more resilient than ever. Below are a few of the key points they hit on in the latest Quarterly report, titled ‘Rural Industries Adapt to Coronavirus Reality’. The full report can be found HERE.

Macro-Economic Outlook: CoBank's most recent quarterly report makes a very important point - Traditional economic data can go stale remarkably fast in the COVID-19 era. The bank's analysts note that recent government data does point to steady improvement in the U.S. economy since the March shutdown, which largely coincides with re-openings. Looking under the hood of traditional data, troubling signs include the more than 20 million newly unemployed that have remained jobless since May.

Dan Kowalski, vice president of CoBank’s Knowledge Exchange Division, notes that regions slower to recover will unavoidably impact the entire country. Likewise, industries that have been more directly impacted by the pandemic, such as travel, tourism, education, and other aspects of normal life are expected to remain sluggish until the virus risk subsides. That's not to say economic improvements will come to a halt but Kowalski says the "bounciest" post-shutdown economic gains are almost certainly behind us and the grind awaits. The analyst also highlighted fiscal stimulus measures in the works that could provide additional aid for agriculture and/or rural infrastructure.
Grains: CoBank’s Kenneth Scott Zuckerberg said grain has been moving and basis has generally tightened since April 1, noting that the second quarter was an eventful one for the U.S. grain complex. Zuckerberg highlights tightening corn basis as U.S. ethanol production began to recover, though he does note it has been somewhat disconnected across certain regions of the Midwest Corn Belt as more corn purchases are cost-effectively transported by barge.

For wheat, Zuckerberg says an issue that surfaced late in the quarter could impact prices and basis in the future - test weights in certain parts of Kansas that may have suffered from hot, dry temperatures and high winds earlier in the growing season. He also notes "substantial" sorghum imports by China that saw the basis in central Kansas tighten materially into late June. In the coming months, CoBank is focusing on the following: Domestic weather, Brazilian crop production, China / U.S. relations, Other trade issues, such as ongoing negotiations between the U.S., EU, and UK.

CoBank predicts the pandemic will cause the ethanol industry to rationalize excess capacity and further diversify as 2021 fuel demand is not expected to fully rebound to pre-COVID-19 levels. Looking out three months, Zuckerberg points to currently resurging coronavirus infections in several states along with renewed activity restrictions that he says will "arguably reduce driving and fuel demand." CoBank projects ethanol fuel demand will recover to only 85%-90% of pre-VOVID levels by 2021.
Beef: Beef processing, CoBank said, is now operating at 95% of capacity with all facilities back online. The beef sector is now focused on-demand, with traffic at foodservice establishments continuing to improve but social distancing restrictions and consumers’ reluctance to venture out of their home for non-essential trips have hampered a full recovery. This means ongoing challenges for the dine-in, full-service sector, which especially hurts the beef complex. Another challenge for the beef industry is the tens of millions of Americans that have lost jobs amid the pandemic and could possibly lose government supports soon. CoBank expects modest supply growth in 2020, with production climbing +1%, versus the previous estimate for growth of +2%.
Pork: CoBank's report says the pork industry is beginning to work through its backlog of hogs, estimating that nearly 3 million pigs that were supposed to come to market in the second quarter were not able to do so because of coronavirus-related disruptions. The degree to which these disruptions affected pork supplies won't be fully known until later in 2020, potentially creating long-term implications for producers beyond that.

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