Knowledge Exchange Webinar

COVID-19 Impact on the Economy

and Agricultural Sectors

April 30, 2020

Presentations by:

Dan Kowalski, Vice President, Knowledge Exchange Division

Kenneth Scott Zuckerberg, Lead Economist, Grain and Farm Supply, Knowledge Exchange Division

Will Sawyer, Lead Economist, Animal Protein, Knowledge Exchange Division

E-mail: KED@cobank.com

Disclaimer: The information provided in this presentation is not intended to be investment, tax, or legal advice and should not be relied upon

by recipients for such purposes. The information contained in this presentation has been compiled from what CoBank regards as reliable

sources. However, CoBank does not make any representation or warranty regarding the content, and disclaims any responsibility for the

information, materials, third party opinions, and data included in this report. In no event will CoBank be liable for any decision made or actions

taken by any person or persons relying on the information contained in this presentation.

Outlook on the Economy and Dairy

Dan Kowalski

CoBank, ACB

Vice President

Knowledge Exchange Division

Greenwood Village, CO

2

Grain/Farm Supply/Ethanol Outlook

Kenneth Scott Zuckerberg

CoBank, ACB

Lead Economist

Knowledge Exchange Division

New York Metro Area

3

Animal Protein Outlook

Will Sawyer

CoBank, ACB

Lead Economist

Knowledge Exchange Division

Atlanta, GA

4

Global & U.S. Economies

Dan Kowalski

5

Unemployed total tops 30 million. Roughly 1 in 5 American workers unemployed. Unemployment rate for April probably 14-16%.

6Source: US Labor Dept

0

1

2

3

4

5

6

7

8

Jan-1

8

Fe

b-1

8

Mar-

18

Apr-

18

May-1

8

Jun-1

8

Jul-18

Au

g-1

8

Sep-1

8

Oct-

18

Nov-1

8

De

c-1

8

Jan-1

9

Fe

b-1

9

Mar-

19

Apr-

19

May-1

9

Jun-1

9

Jul-19

Aug-1

9

Sep-1

9

Oct-

19

Nov-1

9

Dec-1

9

Jan-2

0

Fe

b-2

0

Mar-

20

Apr-

20

May-2

0

MillionInitial Jobless Claims

Week ending 4/25:

3.8 million

During 2008-09, the

peak week was 700k

U.S. GDP in Q1 worse than expected, but Q2 will be on a different scale

7Source: Oxford Economics

The U.S. and world economies will contract more in 2020 than in 2009

8

2.2

-1.1

2.6

-3.5-4

-3

-2

-1

0

1

2

3

2008 2009 2019 2020F

Annual % Change

World GDP

-0.1

-2.5

2.3

-6.9-8

-6

-4

-2

0

2

4

2008 2009 2019 2020F

Annual % Change

U.S. GDP

Source: Oxford Economics

Baseline forecast: GDP is back to Q4 2019 levels by Q2 2021. But a second contagion wave in fall or winter could change that

9Source: Oxford Economics

U.S. COVID cases are falling, but very slowly

10Source: NY Times

Most Americans not ready for the re-opening

11Source: Morning Consult

Half of U.S. workers stand to earn more in unemployment than they did at their jobs before the shutdown. The unemployment $ boost lasts through July

12Source: WSJ

When businesses reopen,

will workers return?

Grain / Ethanol / Farm Supply Outlook

Kenneth Scott Zuckerberg

13

The Question

14

What is the impact of COVID-19 and the

economic slowdown on the U.S. Grain,

Ethanol and Farm Supply sectors?

The Answer

15

Ethanol

Impact on Corn = Lower Demand

Shelter in Place Reduced Gasoline Usage Ethanol

Demand Destruction Plant Closures and Production

Cuts shortages of Distiller’s Grains Carbon Dioxide and

other co-products Lower Corn Demand

Short Term

Outlook

Grain

Mixed but exports encouraging

Corn prices and basis have come under significant

pressure amidst ethanol demand destruction, reduced feed

demand and lower exports.

Soybean and Wheat have held up better due to exports

and consumer staple usage.

Negative

Neutral to

Negative

Minimal impact from COVID impact thus far

Iowa and Illinois corn and soybeans doing very well with

35% to 40% planted

Weather has been favorable and forward one month

outlook very good; current agronomic inventories are

adequate. Supply chain in focus for 3Q 2020

Farm Supply

Stable*

* Although

grower financial

health is coming

under increasing

pressure

Five Observations

16

Observation #1: A recession was inevitable; the “forced” global shutdown to contain COVID19 was a Black Swan

17

Rising GDP Falling GDP

Ris

ing I

nflation

Falli

ng I

nflation

Stage 1

Economic Recovery

Begins

2009, 2010

Stage 4

RECESSION

March 2020

Stage 2

Accelerating

Economic Growth

2011 to 2017

Stage 3

Stable and then Declining

Mature Economic Growth

2018 to 2019

“Typical” Economic Growth Cycles

Source: Kenneth Scott Zuckerberg, CoBank 2020

Observation #2: US. farmer financial health was already under pressure in 2020; additional pain is inevitable

18

0

2

4

6

8

10

12

14

197

0

197

2

197

4

197

6

197

8

198

0

198

2

198

4

198

6

198

8

199

0

199

2

19

94

199

6

199

8

200

0

200

2

20

04

200

6

200

8

201

0

201

2

20

14

201

6

201

8

Farm Debt-to-Income Ratio

Farm Debt-

to-Income

Increased

Ahead of the

1980’s Farm

Crisis

Ratio

“Stress” Had Been

Present Since 2015

Source: USDA-ERS, CoBank ACB

Observation #3: Grain exports are mixed but Soybeanand Wheat volume are encouraging!

19Source: USDA-FAS as of April 16, 2020

Accumulated Exports by Marketing Year Corn Soybeans Wheat

Volumes Change (Total)

Current Period - April 2020 (1,000 metric tons) 21,650 31,696 21,419

Year Ago - April 2019 (1,000 metric tons) 33,497 33,175 20,095

Percentage Change::

China n/m +123% n/m

Mexico -17% -10% +31%

Canada n/m n/m n/m

Japan -38% -4% 0%

Total -35% +5% +7%

Notes:

Russia has suspended grain exports until July 1st. Chinese bought 2.1 MMT soybeans from Brazil in March, a 25%

decrease YoY due to harvest delays (February rain), helping boost US. Soybean exports to 1.7MMT during the month.

Observation #4: However, USD strength vs. Brazil and Russia makes exports more expensive / less competitive

20

Brazilian Real Russian Ruble

“The Real has reached a fresh record historical low against

the USD, reflecting concerns over a deep economic

recession due to coronavirus pandemic, political uncertainty

and despite stimulus from the government and central

bank.”

“The Russian continues to appreciate at benchmark Brent

Crude Oil rebounded above $20 a barrel. On April 24th, the

Bank of Russia slashed interest rates to its lowest in six

years and kept the door open to further cuts.”

.

Source: Trading Economics, April 28, 2020

Observation #5: Crop progress continues, weather outlook remains favorable: “Here Comes The Sun!”

21

Monthly Precipitation Outlook Drought Monitor

Source: NOAA Climate.gov April 28, 2020

https://www.climate.gov/maps-data/data-snapshots/precipoutlook-monthly-cpc-2020-04-

16?theme=Precipitation

Source: NOAA Climate.gov

https://www.climate.gov/maps-data/data-snapshots/usdroughtmonitor-weekly-ndmc-2020-

04-21?theme=Drought

Sector Strategic Positioning

22

Long-Term Outlooks

ETHANOL

Excess supply needs to be rationalized

The exit of weak players will be positive for top tier producers.

Growth opportunities exist via consolidation, exports to China and

expansion of co-products

GRAIN

Exports are actually showing momentum recently in corn, soy

and wheat.

Resolution of trade agreements (China,

USMCA, Japan paying dividends.) US has an opportunity to reduce production costs and regain an export edge

via digitalization of agriculture

FARM SUPPLY

Input source (from outside USA) could be

an issue post COVID19, Co-op

model has long needed to evolve anyway to

capture greater value. Opportunity exists to

shift from commission sales on inputs and free

agronomic advice to Field Diagnostics /

Advice as a Service

23

Don’t let a good crisis go to waste! Economic chaos calls attention to things that needed to

change but lacked a catalyst. We now have that catalyst, opportunities lie ahead

Animal Protein Outlook

Will Sawyer

24

Recent Developments in U.S. Animal Protein

Retail food and meat sales growth has slowed and restaurant sales are showing signs of improvement, albeit still significantly below year ago levels

Instances of COVID-19 in the mostly rural communities around meat plants have surpassed the U.S. national average

Meat and poultry production continues to contract with pork and beef capacity utilization contracting to multi-decade lows

Livestock producer margins remain significantly unprofitable and in most cases have declined in the last two weeks

President Trump has signed an Executive Order keeping meat and poultry plants open

25

Food Stockpiling by Consumers in March, Consumption “Normalizing” in April

26Source: IRI, Blackbox Intelligence, NCBA, NPB, CoBank Estimates

2%11%

63% 58%

14% 17% 16%5%8%

-3%-19%

-66% -67% -62% -59%-48%

March1st

March8th

March15th

March22nd

March29th

April5th

April12th

April19th

Food Sales Growth At-Home vs Away-from-Home

Grocery Retail Restaurant/Foodservice

-20%

0%

20%

40%

60%

80%

100%

March1st

March8th

March15th

March22nd

March29th

April5th

April12th

April19th

Retail Grocery Sales Growth

Total Store Center-of-the-Store

Meat Department Produce Department

The Spread of COVID-19 in U.S. Meat Plants and Rural America

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

April 1, 2020 April 15, 2020 April 29, 2020

Per Capita COVID-19 Cases Counties Neighboring U.S. Meat Plants

U.S. Beef Plants U.S. Pork Plants National Average

per 10k people

Note: COVID-19 cases per capita in six counties including and adjacent to packing plant

Source: CDC, CoBank Estimates

27Source: CDC, Meat & Poultry, CoBank Estimates

Meat Plant Capacity Has Declined ~40% in April

28

50%

60%

70%

80%

90%

100%

110%

11

-Jan

18

-Jan

25

-Jan

1-F

eb

8-F

eb

15

-Fe

b

22

-Fe

b

29

-Fe

b

7-M

ar

14

-Ma

r

21

-Ma

r

28

-Ma

r

4-A

pr

11

-Apr

18

-Apr

25

-Apr

2-M

ay

Estimated U.S. Pork and Beef 2020 Capacity Utilization

Pork Plants Beef Plants

15 120

255

469

914

April 4,2020

April 11,2020

April 18,2020

April 25,2020

May 2,2020

Weekly “Under Processed” Hog Supplies (000s head)

Source: USDA AMS, CoBank Estimates

Weak Industry Profitability in Q1 Has DeclinedFurther in April

29

($400)

($350)

($300)

($250)

($200)

($150)

($100)

($50)

$0

$50

$100

$150

($40)

($35)

($30)

($25)

($20)

($15)

($10)

($5)

$0

$5

$10

$15

U.S. Meat and Poultry Producer Cash Margin in 2020

Hog Producer ($/head) Chicken Integrator (cents/lb) Cattle Feeder ($/head, right axis)

Source: USDA AMS, CoBank Estimates

U.S. Government Announcing New Initiatives to GetMeat and Poultry Plants Open Again

30

Animal Protein Sector OutlookC

att

le -

Be

ef • Robust retail demand but

rising unemployment to pressure more expensive cuts

• Highest exposure to foodservice, especially the full-service restaurant sector

• Labor shortages especially challenging for packers due to low levels of automation and large market share of individual plants

• Strong cash margins of packers being offset by weak capacity utilization and declining foodservice demand

• Cattle feeders getting pressured by weak leverage with packer and sharp declines in fed prices

• Producers have flexibility with generally positive grazing conditions stretching the supply chain

Ho

g -

Po

rk

• Lowest exposure to foodservice of U.S. animal proteins but still seeing negative price impacts in bacon and ham

• Exports continue to climb helping to offset supply growth in Q1 but will face increased competition due to the strong dollar and weak economies in Canada and the EU

• Packing plants in U.S. Mid-Atlantic in areas with heightened COVID-19 risks following shutdown of large South Dakota facility

• Production has already started to contract with liquidation of some small independent hog producers and supply shrinking by 14% in last two weeks

Ch

icke

n • Despite 40% of chicken’s domestic sales being in foodservice, increased exposure to limited-service restaurants and lower price point helping it weather the foodservice slowdown

• Big bird producers with increased foodservice exposure experiencing the bulk of the margin pressure

• New capacity of 2019 making it a challenge to reduce production more quickly

• Chick placements and bird weights reflecting lower production this summer

• Production growth flattening and will turn negative in the back-half of Q2 and Q3

• Industry could experience the largest loss in nearly a decade

31Source: CoBank

Dairy Markets

Dan Kowalski

32

Dairy industry is producing 10-15% more milk than is being consumed

33Source: LMIC, USDA-NASS

Questions

Presentations by:

Dan Kowalski, Vice President, Knowledge Exchange Division

Kenneth Scott Zuckerberg, Lead Economist, Grain and Farm Supply, Knowledge Exchange Division

Will Sawyer, Lead Economist, Animal Protein, Knowledge Exchange Division

E-mail: KED@cobank.com