The U.S. economy is in better shape than it was in late spring, but progress has slowed measurably, and the economy remains fragile, according to a new quarterly report from CoBank.
CoBank’s Knowledge Exchange released its latest Quarterly report in early October, and analyzed the impacts of COVID-19 and other disruptions on the economy—especially in rural communities. With broad fiscal support unlikely to happen in the near-term, the report predicts the economy will end the year in a fizzle.
Rural America particularly has experienced a division between improving industry fundamentals and a disproportionate number of new COVID-19 cases.
“The good news, at least from an economic standpoint, is that many rural industries have begun to turn the corner,” said Dan Kowalski, vice president of CoBank’s Knowledge Exchange division. “This is particularly true in agriculture. A weaker, steady dollar has supported a price recovery in most agricultural commodities. And despite the myriad of challenges they’ve faced in 2020, essential rural industries are finding new ways to survive and, in some cases, thrive.”
The U.S. beef cattle complex ended the third quarter in a better position than where it started. The boxed beef cutout has climbed 5 percent over the past three months, boosting cattle prices by 10 percent since the early July low.
Although China is unlikely to reach its trade obligations in the Phase One deal, CoBank reported sales to China have been strong in the past few months.
Beef, cattle sectors
In addition to cattle prices increasing from their Fourth of July low, profitability for cattle feeders has improved to break-even levels on a cash basis, and packer margins have remained elevated, according to the report. Packers will likely continue to enjoy a strong position in the cattle supply chain throughout 2020 as a result of limited beef packing capacity, a backlog of cattle, and strong beef demand.
For much of the third quarter, beef prices have been surprisingly strong. The cutout has remained high above the seasonal five-year average and ended the quarter higher than the same time last year. However, with cooler weather approaching and many areas limiting indoor dining, the report emphasizes concern for beef demand and prices in the fourth quarter.
Weekly fed cattle slaughter throughout the third quarter was between 510,000-525,000 head, with little volatility and at levels similar to last year. The Holcomb, KS, plant fire and the strains on the industry from COVID-19 have given beef plant capacity minimal cushion, and beef plants will be essential to ensuring a strong end to a challenging year, the report concluded.
Grains and China
Grain exports to China have been robust in the third quarter. China bought record amounts of U.S. grains over the summer and made two record one-day purchases of corn: 1.8 million metric tons (mmt) on July 14; and 1.9 mmt on July 30. Outstanding corn sales as of early October total more than 9.2 mmt.
However, grain sales to actual grain physically exported shows the latter is considerably smaller than the former for all grain exports except wheat. The report noted the key takeaway with this is caution, as China is known for announcing grain purchases but then failing to follow through.
“This is a risk factor given that the recent export momentum has placed a bid under futures prices,” according to the report.
USDA’s ending stocks for corn as of Sept. 1 were 11.6 percent lower than expected. The corn basis finished the quarter flat at $0.20 after widening on initial large crop expectations. As China began to aggressively buy corn, the basis tightened sharply.
The report concluded that economic progress will be slower than the gains already achieved. The September jobs report showed smaller employment gains for the third consecutive month, and a surge in permanent job losses.
Rural areas were largely spared the health impacts of COVID-19 until September, but now a rising amount of cases will require a larger effort to control the virus.
“Aside from the terrible personal impact this is causing, rural businesses and the rural economy will see increasing damage,” the report concluded.
The entirety of the CoBank report, including other industry sectors such as dairy, crops, and specialty crops, can be found online at cobank.com under the Corporate and News tabs. — Anna Miller, WLJ editor