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COVID-19 disrupts agricultural economy

Latest Beige Book provides anecdotal information on worsening agricultural conditions.

Economic activity declined in all Federal Reserve districts since April 15, according to the latest Federal Reserve Beige Book.

The latest Beige Book was released May 20. The report is published eight times a year. It's a summary of anecdotal information on current economic conditions in Federal Reserve districts.

Overall economic activity

Economic activity declined in all districts, reflecting disruptions associated with the COVID-19 pandemic. Consumer spending fell as mandated closures of retail establishments remained largely in place during most of the survey period. Declines were especially severe in the leisure and hospitality sector. Auto sales were substantially lower than a year ago. Residential home sales plunged. Construction activity fell. Bankers reported strong demand for PPP loans.

Agricultural conditions worsened, with several districts reporting reduced production capacity at meat-processing plants.

Agricultural conditions

Agricultural conditions softened in much of the Atlanta Federal Reserve District. The April production forecast for Florida's orange crop was down from last month's forecast and last year's production, while the grapefruit production forecast was down from last month's forecast, but ahead of last year's production.

In the Chicago Federal Reserve District, agricultural incomes fell and disruptions were reported in the supply chain for meats, dairy and vegetables. The disruptions were particularly notable for meats, as COVID-19 outbreaks forced a number of packing plants to suspend operations. Some packers restarted, but output was substantially lower than a year ago. With no place to deliver market-ready animals, farmers were forced to slow animal growth and, in some cases, euthanize hogs. Supply disruptions led to higher prices and shortages of meat at grocery stores and restaurants, but lower prices for cattle and hogs. Milk prices also fell, with some producers dumping milk. Some ethanol plants accepted corn deliveries again, but corn prices remained low. Soybean prices also fell, but were favorable relative to corn, resulting in some shift toward planting beans. Planting progress was ahead of last year. Late freezes damaged some crops, particularly fruit trees. Observers expected some distressed farms to liquidate.

Agricultural conditions were mixed in the St. Louis Federal Reserve District. Smaller meat processing plants were experiencing higher demand due to closures of larger plants. Cotton and other row crop producers reported lessened demand and continued low prices.

District agricultural conditions worsened in the Minneapolis Federal Reserve District. There were reports of producers euthanizing animals or placing them on restrictive diets due to pandemic-related closure of livestock slaughter plants. More than two-thirds of Ninth District agricultural lenders reported that farm incomes decreased in the previous three months relative to a year earlier, with a similar share reporting decreased capital spending, according to the Minneapolis Fed's first-quarter (April) survey of agricultural credit conditions.

The farm economy weakened in the Kansas City Federal Reserve District. As of the second week of May, roughly a quarter of U.S. meatpacking and food processing plants with confirmed COVID-19 cases were located in the District. As disruptions in meat and food supply chains worsened and a substantial slowdown in ethanol production continued, cattle and corn prices declined sharply through early May. Alongside significant reductions in demand for corn used in ethanol, corn supply also was forecasted to be the largest on record in 2020. Contacts reported that weak market conditions likely will have major implications for producer cash flows in coming months. Despite a more pessimistic environment, farmland values in the region remained relatively steady.

Wheat remained a bright spot in the Dallas Federal Reserve District. Prices fell for other grain crops, particularly corn, due to declining ethanol demand. Reduced meat processing capacity due to social distancing measures and plant closures translated into lower demand and prices for cattle, even as beef prices soared.

In the San Francisco Federal Reserve District, activity in the agriculture sector slowed further over the reporting period. Domestic demand from the commercial food sector continued to be just a fraction of what it was before the COVID-19 shock. Potato and barley growers in Idaho faced reduced sales to distributors who had retained leftover inventory from the previous season. Fruit growers in California saw some increased demand from food banks, social service providers, and governmental programs, but, a decline overall in domestic demand. On the supply side, some producers in Idaho and Arizona have reduced live animal herd sizes in response to bottlenecks at meat processing plants. Agricultural export markets were similarly downbeat. Milk exports declined notably.

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