COVID-19 Daily Update: May 1, 2020

As the total confirmed cases of coronavirus surpasses 3.3 million and approximately 237,650 people have died, according to Johns Hopkins University data, the pandemic is threatening the very networks that provide the world sustenance. The startling shutdown of the global economy is deepening systemic weaknesses in the supply chains that provide food to markets. While food shortages are not presently a problem in the majority of the world, the crisis has heightened food insecurity in advanced, developed, and emerging economies—and threatens to present populations with additional economic, employment, and health and safety concerns.

“Much of the fight against the COVID-19 and its impacts are beyond our control. One of the dire impacts, that is of great concern, is that the poorest and most vulnerable countries are being threatened by food insecurity, as their foreign exchange earnings to import food and incomes plummet, as threats to food supplies rise due to food export restrictions, and as supply chains break down,” Mari Pangestu, Managing Director for Development Policy and Partnerships for the World Bank, stated at an April 21 videoconference meeting of G20 agricultural ministers.

Farmers around the world are hurting from falling commodity prices, labor shortages, and difficulties related to planting, harvesting, and transporting crops, according to S&P Global Market Intelligence. Europe’s lockdown measures have lowered demand for basic agricultural goods. Fewer Mexican seasonal workers have come to the U.S. to work due to the pandemic, which has disrupted farms' plans to plant and harvest this spring season. Farmers in poorer places are especially vulnerable.

At-risk populations are disproportionally disadvantaged by the coronavirus crisis’ adverse impacts. Nonetheless, value chains for food supplies in the world’s wealthiest countries stand to suffer as the virus continues to spread.

Supply chains for dairy in Europe, Asia, and the U.S. have been disrupted by closed restaurants, offices, hotels, schools, and coffee shops, decreasing demand for milk, butter, cheese, and ice cream.

Across key U.S. regions, COVID-19 is threatening the protein supply chain with foodservice demand freefalling because of containment measures and processing facilities shuttering because of infected workforces, according to S&P Global Ratings. Retailers are struggling to meet demand from panic buying and stockpiling goods. Restaurant traffic has ground to a halt. Protein shortfalls from temporary plant closures across the industry may strain the already stressed food supply chain. S&P Global Ratings currently expects the shutdowns to be temporary but likely to continue in bursts as processing plants become future hotspots for the virus. A sustained shutdown, rather than such temporary closures, would lead to shortages of meat across the country.

On April 26, John Tyson, Chairman of Tyson Foods, one of the world’s largest beef, chicken, and pork processors, gave a stark warning that meat processing plant closures resulting from the COVID-19 crisis may soon lead to meat shortages in supermarkets across the U.S., where consolidation of the meat industry has left a handful of conglomerates in charge of the country’s protein supply.

Tyson said that even short plant closures will reduce the meat available to consumers by millions of pounds. “Millions of pounds, or even a million pounds, of meat sounds very scary when you put it in that context, but it's worth noting that based on the [United States Department of Agriculture] numbers from 2019, even millions of pounds of meat would be a fraction of the total produced in the United States,” Alex Bitter, a retail reporter for S&P Global Market Intelligence, explained on the latest episode of The Essential Podcast. Bitter added that the U.S. produced roughly 27 billion pounds of both beef and pork and around 50 billion pounds of chicken last year. “One of the points he [Tyson] tried to make… was that if plants continue to close, then that number grows and that becomes worse,” he said.  

U.S. President Donald Trump signed an executive order on Tuesday to keep meat processing plants open by designating the facilities as “critical infrastructure.” Union and labor advocates criticized the action, arguing for meat processors to provide appropriate personal protection equipment and put in place social distancing measures.

"Obviously not everyone can work remotely, and you can't really slaughter a pig at home,” Mr. Bitter said on the S&P Global podcast. “If you're on a floor in one of these plants, the workers tend to be quite close together, certainly compared to what a lot of office workers in the United States would be used to… What we've seen recently in the past few weeks is a number of major processing plants that work with meat, not just at Tyson at but also at JBS and Smithfield and some of these other big meat processors, shut down because of the spread of COVID-19 in their workforce. And as a result of that, there is a threat that the entire supply chain theoretically could be upended and that a lot of animals that have been raised for slaughter would essentially have to be slaughtered for nothing, and they would never make it to the plants.”

As of Wednesday, approximately 900 workers, or 40% of the workforce, at a Tyson Foods processing plant in Logansport, Indiana tested positive for coronavirus, according to the state county’s health department. Cases originating from the Tyson plant make up around 75% of Logansport’s total reported cases. While the plant stopped operations temporarily on April 25, the company stated today that it will resume production at the plant next week, with the deep-cleaned facility now outfitted with safety precaution measures including onsite screening capabilities, additional hand sanitizer dispensers, and monitors to enforce social distancing protocols.

The meat processing plant shutdowns are additionally affecting long-term corn feed demand. As idled processing plants reduce meat production, “there are actually more animals to feed in the feedlots that can't get to the slaughterhouses. Those animals will need to be fed longer than usual," Pete Meyer, head of grain and oilseed analytics at S&P Global Platts, said.

The  pandemic may have a greater impact on manufacturing supply chains than the United States-Mexico-Canada Agreement, the replacement for the North American Trade Agreement, which is set to take effect on July 1. “In the immediate future, manufacturers will concentrate on making their supply chains more resilient and sustainable, probably by greater localization of vertical supply chains and geographic diversity of their supply chains," Peter Allgeier told S&P Global Market Intelligence. Allgeier served as deputy U.S. trade representative under the Bush and Obama administrations. "These adaptations [to the outbreak] are likely to be much more significant than any adjustments to comply with the USMCA."

Mr. Bitter and Michael O’Connor, an S&P Global Market Intelligence reporter covering the restaurant and beverage industries, reported that foodservice distributors and manufacturers who sold their products to restaurants have suddenly found themselves with products never intended for sale directly to consumers. This has led many to improvise in order to recover some lost revenue.

In addition, restaurants are converting to contactless delivery to support their business during the pandemic. “If you think about customers coming and picking up their food in a way that minimizes their exposure, a lot of restaurants, in the U.S. especially, already had drive-thru and had that for a long time,” Mr. O’Connor told S&P Global’s The Essential Podcast. “So now, I think what we're seeing is companies that were not as focused on the convenience and maybe more focused on the experience of coming into the restaurant and sitting down and having a meal. Now they're having to think harder about, how do we adapt our business to be able to operate in a world where people don't want to be as exposed to one another in a way that they would in a dining room setting?”

Today is Friday, May 1, 2020, and here’s an overview of today’s essential intelligence.

Supply Chains in Flux

The Essential Podcast, Episode 7: Vegetarian Nation – Supply Chain Disruption and the Coming Meat Shortage

On April 26, John Tyson the Chairman of Tyson Foods gave a stark warning that meat processing plant closures resulting from the COVID-19 crisis may soon lead to meat shortages in supermarkets across the United States. Meanwhile, restaurant closures have also upended supply chains as food service companies struggle to adapt to a new and radically different distribution model. In this episode, host Nathan Hunt interviews S&P Global Market Intelligence reporters Alex Bitter and Michael O’Connor to understand supply chains, the restaurant industry, and the damage wrought by a global pandemic.

Listen and subscribe to this podcast on Spotify, Apple Podcasts, Google Podcasts, Deezer, and our podcast page.

—Share this episode of The Essential Podcast, a podcast from S&P Global

COVID-19 is Taking a Bite Out of Food Supply Chains

Initial assurances by authorities that food supply chains would remain robust during the COVID-19 outbreak are giving way to a more complex reality. At this time, food shortages are not a problem in most of the world. But the pandemic and the economic shutdown are starting to reveal systemic weaknesses in the supply chains that bring food to markets and may be pointing the way towards trouble ahead.

—Read the digest from S&P Global

Will April Pain Lead to May Gain for Commodities?

COVID-19 continued to wreak havoc across commodities markets in April. The S&P GSCI fell 9.67% in April and 47.92% YTD. Economic data continued to weaken into uncharted territory. Supply chains crucial to the flow of commodities from extraction to consumption experienced a sudden shut off and demand collapsed. Energy and agriculture underperformed, while metals offered some green shoots.

—Read the full article from S&P Dow Jones Indices

ESG in the Time of COVID-19

Energy transition to be shaped by world response to COVID-19

The coronavirus pandemic may accelerate a shift from fossil fuel spending to investments in renewable energy, but the pace of that transition depends heavily on how governments direct economic recovery spending, and whether the consumer behavior changes induced by the outbreak become permanent. S&P Global Market Intelligence interviewed some of the leading global climate and energy experts and all agreed that the energy sector will look different on the other side of the COVID-19 crisis. A struggling oil and gas industry will lead to fewer jobs in that field, while changes in commuting, air travel and manufacturing may encourage businesses and governments to reconsider air pollution and traffic congestion problems.

"We may find that going forward, this idea that a multitude of the population is going to get in their cars at 6 a.m. or 7 a.m. and struggle through traffic for two to three hours to get to work: in a field where remote working is acceptable, that paradigm might really go out the window over time," Amy Myers Jaffe, director of the Council on Foreign Relations' energy security program, said in an interview. "In the United States, for example, we waste 6 billion gallons of gasoline a year just in traffic congestion, so the consequences could be quite large."

—Read the full article from S&P Global Market Intelligence

Fossil fuel-exposed utilities could be poised for a coronavirus rebound

With pure-play renewable utilities outperforming their more diversified peers on stock markets in Europe amid a coronavirus-induced sell-off, fossil fuel generators hit by lower power prices and retail suppliers coping with a demand crunch could be set for a rebound. Analysts see promise in stocks from coal-dependent RWE AG to oil-exposed Centrica PLC, after the companies have been battered far more severely than their greener competitors in the wider stock market rout. The two companies are down 17% and 52%, respectively, while wind power generators Ørsted A/S and EDP Renováveis SA are trading at almost the same levels as three months ago, before the crisis hit. In terms of share price performance, "the pure players have been basically untouched" by the coronavirus pandemic, Deepa Venkateswaran, an analyst at Bernstein, said in an April 23 interview. Venkateswaran pointed specifically to the contrast with RWE and other more diversified utilities like EDPR's parent EDP - Energias de Portugal SA, which is also down by double digits. "I think the treatment meted out to those companies has been significantly worse," Venkateswaran said. "The defensiveness of the integrated [utilities] has not been particularly appreciated."

—Read the full article from S&P Global Market Intelligence

Post-crisis, renewable energy giants look to further their dominance

With the coronavirus pandemic battering economies and financial markets around the world, consolidation in the renewable energy industry is poised to accelerate as deep-pocketed investors look to grab market share from smaller rivals. Before the pandemic struck, the renewables sector was already being transformed by a flood of money drawn to stable assets in a fast-growing market. The crisis has reinforced investors' view of clean energy infrastructure such as wind and solar plants as safe harbors in the growing storm, but it is also raising questions about the viability of some owners and developers of clean energy projects, according to interviews with more than a dozen analysts and investors. Utilities, infrastructure companies and other large players with the means to weather the crisis will likely come out of it in a position to tighten their grip on the renewables market in a post-pandemic world, setting the stage for more rapid expansion in the years ahead.

—Read the full article from S&P Global Market Intelligence

Wind industry headed into COVID-19 crisis with record construction activity

The U.S. wind industry installed 1,821 MW of new wind power capacity in the first three months of 2020, a 117% increase over the first quarter of 2019, according to the industry's largest trade group. There are now 107,443 MW of wind power capacity operating in the U.S., the American Wind Energy Association said in its first-quarter report on wind activity, released April 30. Construction activity reached a record of 24,690 MW by the end of March, with an additional 19,751 in advanced development, the association, or AWEA, said. Yet the COVID-19 pandemic puts at risk those projects, AWEA warned. The group said 35,000 jobs, including wind turbine technicians, construction workers and factory workers, are also endangered. AWEA has asked Congress to extend the production tax credit, which expires at year's end, and to include a direct pay option for developers in lieu of the credit.

—Read the full article from S&P Global Market Intelligence

Energy & Commodity Markets in Crisis

US steel, aluminum demand stalls on automakers' shutdowns

The US coronavirus pandemic has disrupted auto production nationwide. The first automotive assembly plant shutdown due to the pandemic occurred on March 18. Since then, all major auto producers across the country have halted operations in response to government mandates and concerns over worker welfare. The stoppages translate into the removal of an estimated 33,000 vehicles a day from production. Domestic steel and aluminum producers have seen a notable drop in demand as a result.

—Read the full article from S&P Global Platts

Factbox: US power load changes as stay-home orders expire, businesses begin to reopen

US power demand is showing some signs of recovery across the country as nearly half the states allowed stay-home orders to expire in recent days. However, many have a phased-in approach in place that still limits activity, while some local jurisdictions decided to extend the orders. When states shut down in March in an effort to stop the spread of the virus, power load dropped as the commercial sector closed down. That drop in demand in turn pulled down power prices across the country at a time when prices already were falling in response to milder spring weather. Adding to the market weakness were record-low natural gas prices from oversupply due to strong production and mild winter weather. Grid operators continue to monitor the ever-evolving situation and maintain there is no threat to grid reliability. However, the market remains in uncharted territory.

—Read the full article from S&P Global Platts

Phillips 66 expects gasoline to lead oil product demand recovery

Phillips 66 expects to see gasoline demand recovering more quickly than distillate demand as stay-at-home orders begin to be lifted across the US. CEO Greg Garland said on Friday's first-quarter earnings call he suspects the increase in refined product demand is "going to be around gasoline." "People have been cooped up," he said. "They want to drive. I think they are going to be reluctant to go get in the middle seat on an airplane first."

—Read the full article from S&P Global Platts

ExxonMobil to curb 10% of oil, gas output in Q2; Permian to take bigger hit

ExxonMobil said Friday it expects to cut global upstream production by 10% or 400,000 b/d of oil equivalent in the second quarter through shut-ins and curtailments in response to the oil price collapse and plunging global demand. Permian oil and natural gas production will drop by about 100,000 boe/d in Q2, or 28%, from 352,000 boe/d in Q1, as ExxonMobil shuts in newer, promising wells to preserve their higher flow rates for when prices recover, said CEO Darren Woods. "A lot of these wells that are early in their life or just started up, you get very high production rates," Woods told analysts during an earnings call. "You're better off deferring that high production rate into a period with better pricing." At the same time, Woods said ExxonMobil is working to slash drilling costs in the Permian so that its remaining production can stay competitive during extended low prices.

—Read the full article from S&P Global Platts

Feature: Aluminum companies resist petcoke price hikes due to oil refining force majeures

Cost-strapped aluminum companies struggled to contain potential increases in calcined petcoke prices in April following supply-side disruptions due to oil refinery production cuts. The most significant supply impact was a declaration of force majeure for P66's Humber oil refinery in the UK, which supplies around 400,000 mt/year of low-sulfur CPC primarily for the European market. P66 sent the notice to aluminum customers last week, saying the three-month force majeure was the result of the "sudden and substantial reduction in demand for petroleum products in the United Kingdom and globally" which hindered the safe operation of Humber. The company's overall planned CPC production is reduced by 10%-20% for the rest of the year, and the "quantity of regular calcined coke available [under contracts] ... during this period is anticipated to be reduced proportionately," P66's notice said.

—Read the full article from S&P Global Platts

UK transport fuel demand slips to multi-year lows in March as lockdown bites

Demand for key transport fuels in the UK fell to multi-years lows in March as sales in Europe's second biggest oil market began to slump due to travel restrictions to contain the spread of coronavirus. Demand for jet fuel was the hardest hit by the lockdown measures, falling to 1.14 million mt in March, down 15% from year-ago levels and the lowest March level since 2002, according to official UK data submitted to the Joint Organizations Data Initiative (JODI). The UK 's road fuel demand, which peaked in 2006, totaled 3.35 million mt in March, down 2% from year-ago levels and the lowest March level for gasoline and diesel demand since 2013, according to the data.

—Read the full article from S&P Global Platts

Latin American polymers see a consecutive month of record low prices

Most Latin American polymer prices hit the lowest point since S&P Global Platts began assessing them, the fourth consecutive week of historic lows. Domestic Brazilian and Argentinian prices were the exceptions to the trend. The low were for all grades of high-density polyethylene, linear low-density polyethylene, PVC and for some polypropylene regions. Traders said they believed prices will continue to fall in the coming weeks if demand doesn't pick up. "With lockdowns across the region, activity is only related to food and health sectors, so a lot of products have no demand at all, especially injection grades," a regional trader said.

—Read the full article from S&P Global Platts

The Future of Credit

Understanding the Shift in Trade Credit in the COVID-19 Pandemic

Figure 1: Distribution of companies by the number of employees

Figure 2: Distribution of companies by industry sectors

The unexpected COVID-19 pandemic has severely shocked the global economy. Due to the first nationwide mandatory closure of non-essential businesses in recent history, business owners, especially those of small and medium-sized enterprises (SMEs), in the United States are faced with the challenge of survival. According to S&P Global Ratings in a report published in March, supply-chain financing, such as reverse factoring, could mask episodes of financial stress by boosting operating cash flow and reducing headline debt numbers. Further, it can accelerate cash outflows in a stress scenario where the financing is not rolled over or withdrawn. In this article, S&P Global Market Intelligence presents the results of a study on the trade payables of US companies since the outbreak of COVID-19, aiming to provide a clearer picture on the shift in supply-chain financing activities due to the pandemic, as well as a forward-looking view on companies’ payment behavior.

—Read the full article from S&P Global Market Intelligence

SF Credit Brief: While Stay-At-Home Orders Clear Traffic, U.S. Auto Loan Extensions Rise

One of the first effects that the COVID-19 pandemic has had on outstanding U.S. auto loan asset-backed securities (ABS) has been the spike in extensions. In the prime segment for March, extensions on a dollar basis equaled 3.94% of outstanding loans as of the beginning of the month, 12 times February's level of 0.33%. For the four subprime auto loan ABS shelves (Santander's DRIVE and SDART, AmeriCredit, and World Omni's Select), extensions more than quadrupled to 6.82%, from 1.53% in February. The spike in extensions isn't surprising given that over 10 million Americans applied for unemployment benefits in March due to layoffs and furloughs as a result of the stay-at-home orders designed to slow the spread of the coronavirus. Most auto lenders have responded by providing affected borrowers payment extensions/deferrals of between 30 and 120 days. These extension/deferral plans differ by lender, with some requiring that the obligor be current at the time of the extension and others allowing the obligor to be up to 90 days' delinquent. Lenders generally waive extension fees, although interest continues to accrue through the extension period. These extensions are intended to be short-term (i.e., to tide the obligor over until their paychecks resume). When used effectively, they can generate lower losses than repossessing and liquidating the vehicles.

—Read the full report from S&P Global Ratings

Banks, borrowers eagerly await overdue SBA loan forgiveness guidance

Banks and borrowers alike are eagerly awaiting overdue regulatory guidance on loan forgiveness in the Paycheck Protection Program. The loan program, overseen by the Small Business Administration, requires banks to make the initial determination on whether borrowers have met the loan forgiveness requirements in the emergency small business loan program. The authorizing law stipulates borrowers can request forgiveness if at least 75% of the funds are used on payroll over an eight-week period. But borrowers and lenders are still in need of more granular guidance on which costs, precisely, qualify for forgiveness. For borrowers who already received loans and put the money to work, the eight-week clock is ticking and there are unresolved questions, such as what documentation is required or how to calculate forgiveness portions for borrowers who do not meet the 75% threshold.

—Read the full article from S&P Global Market Intelligence

European high-yield bond market sanguine in face of rising fallen-angel risk

The major rating agencies are being proactive in addressing outlooks and ratings changes to account for the impact of COVID-19 on companies and economies, meaning the list of potential fallen angels is now growing. For now though, both the sellside and buyside within the European high-yield bond segment remain sanguine about this situation, with some investors keen to pick up any new names on offer. What's more, few players appear to be concerned that a slew of fallen angels could overwhelm the market — although some analysts do warn of indigestion arising from credit downgrades in certain sectors. Note that a fallen angel is a company whose credit rating has been downgraded to sub-investment grade. The majority of its ratings (typically two, from the three major agencies, Fitch, Moody’s, and S&P) have to be in this category to be designated a fallen angel, but if the company is only rated by one agency, then that is sufficient.

—Read the full article from S&P Global Market Intelligence

COVID-hit France, Spain lead film box office declines in Europe

European box office revenue fell 29.4% year over year in the first quarter as the coronavirus led to film theater closures across the region. Of the tracked markets, France saw the greatest year-over-year decline as revenue fell 47.3%, to total $211.5 million, according to data compiled by S&P Global Market Intelligence and OPUSData. The country has been in lockdown since March 17, and although certain measures will be relaxed in May, social gatherings and "leisure activities" will remain banned until at least mid-July, President Emmanuel Macron said recently. After France, the worst impacted countries were Spain and Poland, which saw box office revenues fall 40.3% and 36.3% year over year, respectively. Italy, which as of April 30 had the highest death toll from COVID-19 in Europe, saw box office revenue fall 27.8% in the first quarter. A bumper January offset greater losses later in the quarter for Italy — January box office revenue was $116.3 million, the country's highest total since December 2017. By contrast, March 2020 revenue was the lowest, at $170,000.

—Read the full article from S&P Global Market Intelligence

How COVID-19 Will Affect Origination And Delinquency Levels In The Argentine Financial Trust Market

COVID-19 and its related containment measures in Argentina have modified operations in the local credit market. In the coming weeks and months, securitized portfolio performance will depend mainly on the progress of the lockdown measures adopted (preventive and mandatory), and on the evolution of the economic and financial situation in Argentina. Personal and consumer loans with voluntary payments are the most affected by social distancing measures. S&P Global Ratings does not expect a higher deterioration on payroll deductible loans of pensioners and public workers. If the government decides to apply the social distancing and lockdown measures in a more strict way, this could increase the deterioration of the securitized assets.

—Read the full report from S&P Global Ratings

Written and compiled by Molly Mintz.