Economic activity declined in all Districts – falling sharply in most – reflecting disruptions associated with the COVID-19 pandemic. Consumer spending fell further 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, with very little activity at travel and tourism businesses. Auto sales were substantially lower than a year ago, although several Districts noted recent improvement.
A majority of Districts reported sharp drops in manufacturing activity, and production was notably weak in auto, aerospace, and energy-related plants. Residential home sales plunged due in part to fewer new listings and to restrictions on home showings in many areas. Construction activity also fell as new projects failed to materialize in many Districts. Commercial real estate contacts mentioned that a large number of retail tenants had deferred or missed rent payments. Bankers reported strong demand for PPP loans.
Agricultural conditions worsened, with several Districts reporting reduced production capacity at meat-processing plants due to closures and social distancing measures. Energy activity plummeted as firms announced oil well closures, which led to historically low levels of active drilling rigs.
Although many contacts expressed hope that overall activity would pick-up as businesses reopened, the outlook remained highly uncertain and most contacts were pessimistic about the potential pace of recovery.
Agricultural conditions softened. Most of the District remained drought free, with the exception of much of Florida, southern Louisiana and other parts of the Gulf coast region, which experienced abnormally dry to severe drought conditions. On a month-over-month basis, 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. The USDA reported that for March, year-over-year prices paid to farmers were up for corn, rice, eggs and milk but down for cotton, soybeans, cattle and broilers. On a month-over-month basis, prices increased for broilers and eggs but decreased for corn, cotton, rice, soybeans, beef and milk.
Agriculture incomes fell over the reporting period as most commodity prices fell. Contacts reported disruptions in the supply chain for meats, dairy and vegetables. The disruptions were particularly notable for meats, as coronavirus 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 herd growth (including by euthanizing hogs). On net, the 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. Farmers anticipated government programs would help during the downturn, but observers expected some distressed farms to be forced to liquidate.
District agriculture conditions have been mixed since April. Contacts reported that transportation and warehousing costs have increased and supply chain issues are affecting many producers. Smaller meat processing plants experiencing higher demand due to closures of larger plants are constrained by regulatory requirements. Contacts reported significant variation in revenue as some industries such as rice producers have seen increased demand and prices for their goods. Meanwhile, cotton and other row crop producers reported lessened demand and continued low commodity prices, making profitability a challenge. Planting has increased since the previous reporting period and is up modestly from this time in 2019. However, this is largely due to improvements in states that experienced historic flooding in 2019.
District agricultural conditions worsened. Reports continued to surface 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 in the Tenth District weakened further alongside developments related to COVID-19. 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.
Soil moisture levels remained favorable across most of the district, except for South Texas where there was drought. Wheat remained a bright spot with higher prices, strong demand, and solid yield prospects. Prices fell for other grain crops, particularly corn, due to declining ethanol demand. Contacts noted some concern for 2020 revenues in part due to lower grain prices. 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.
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