CoBank Quarterly: U.S. Economic Recovery Sputtering as COVID-19 Persists

Rural businesses will be challenged as coronavirus cases in rural areas are now among the highest on a population-weighted basis

DENVER (October 08, 2020) — The U.S. economy has been improving since late spring, but progress has slowed measurably, and the economy remains fragile. Another broad fiscal relief package appears to be off the table at least in the near-term, which means the currently sluggish economy will likely end the year in a fizzle.

According to a new Quarterly report from CoBank’s Knowledge Exchange, rural America is experiencing a dichotomy of improving industry fundamentals and a surge of COVID cases. Rural communities are now the source of a disproportionate number of new cases, just as many Americans are beginning to spend much more time indoors.

“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. ethanol sector continued to recover during the third quarter to a new baseline level equaling roughly 90% of pre-COVID demand. Recent developments surrounding E15, small refinery exemptions, federal relief and another delay on Brazilian import duties appear to be incremental positives for the ethanol complex.

Large grain sales to China, and recent reductions in ending stocks and expected production, have provided a relief rally for U.S. grain farmers. Strong export sales were a major driver of recent positive commodity price performance. However, China has a propensity to announce but not close grain purchases, so whether China will ultimately import the grain remains a lingering question.

Farm supply retailers navigated through a volatile, yet ultimately successful growing season. The current season ended with an expected strong harvest despite crop damage and stress caused by extreme storm activity and dry weather. Direct government payments to agriculture producers throughout 2020 could result in higher prepayments to farm supply cooperatives during the fourth quarter in advance of the spring 2021 planting season.

The U.S. beef complex ended the third quarter in a far better position than where it started. Over the last three months, boxed beef cutout has climbed 5%. This helped lift cattle prices by 10% since the low around Independence Day. Profitability for cattle feeders has improved to break-even levels on a cash basis and packer margins have remained elevated.

Renewed optimism for trade is the bright spot for the U.S. pork sector after pork exports slowed significantly over the summer. Germany discovered African Swine Fever (ASF) in wild boars, leading many key pork importing markets to ban pork exports from Germany. Lean hog futures have spiked on this news. Hog producers are expected to lose $7/head in the coming quarter and see positive margins of $15 to $20 per head in the first half of 2021.

Foodservice continues to be a difficult channel for U.S. animal protein, but the chicken sector is faring better than most, thanks to quick serve restaurants and take-out dining. The third quarter brought improved pricing and margins for the U.S. chicken industry. Most producers were modestly profitable over the summer. The weak spot in the U.S. chicken complex continues to be dark meat chicken prices.

Dairy markets remained mired in volatility last quarter with milk and cheese prices ending on a strong note. The recovery in milk prices has already incentivized more milk production on the farm. Federal programs also helped provide financial cushion for some struggling dairy producers last quarter. Butter and cream face an uphill battle with the uncertainty over consumer demand during the important holiday season when demand for these products peaks.

The reopening of restaurants in the third quarter was welcomed news for specialty crop producers and processors with food service contracts. Although the expected rise in COVID-19 cases this fall and winter would further strain the restaurant sector and close more schools, causing greater uncertainty. Produce sales at retail grocery stores, however, remain solidly above year-ago levels and are widely expected to remain at higher levels than prior years for the foreseeable future.

Despite strong Chinese purchases, total cotton demand remains weak. Total U.S. upland cotton export sales for the 2020-21 marketing year still lag last year’s pace by 17%. Global retail demand for clothing and apparel has yet to recover from the economic shock of the COVID-19 pandemic.

U.S. rough rice futures ended the third quarter near contract highs in the pan-commodity rally with support from a weaker U.S. dollar. Rising global prices, notably in Brazil, hint at a potential improvement in export demand for U.S. rice in Q4.

The electricity sector’s transition from coal to clean energy is happening more quickly than expected, according to September data. The pandemic has reduced loads and intensified fuel competition, with coal-to-gas switching idling a significant amount of coal capacity this year. 2020 will likely prove a watershed year, with a newly reinforced acknowledgement of the “changing of the guard” paving the way for faster energy transition.

The full Quarterly report is available on 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 $152 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.

Media Contacts

Julie Davis
Corporate Communications

Sherry Johnson
Corporate Social Responsibility

Dave Harding
Knowledge Exchange