Business Owners Optimistic

Business owners are optimistic about future business conditions and expect the recession to be short-lived, announced the National Federation of Independent Business (NFIB) last week.

The organization’s Small Business Optimism Index increased 3.5 points in May to 94.4, a strong improvement from April’s 90.9 reading. Eight of the 10 Index components improved in May and two declined. The NFIB Uncertainty Index increased seven points to 82. Reports of expected business conditions in the next six months increased 5 points to a net 34%, following a 24-point increase in April.

Said Montana State Director for NFIB Director, Riley Johnson, “It’s very encouraging to see eight of 10 index components having improved over the previous month’s findings, especially in the plans to increase employment and in the plans to increase inventory categories. It’s important to remember that this poll was taken before last Friday’s signing of the federal law giving more flexibility to small-business owners who took out Paycheck Protection Program loans. I see more than just a glimmer or two of hope for an improving economy, and, coronavirus willing, a speedier recovery than originally thought.”

NFIB Research Center has collected Small Business Economic Trends Data with Quarterly surveys since 1973 and monthly surveys since 1986. The sample is drawn from the membership files of the National Federation of Independent Business (NFIB). The SBET is one of the few archival data sets on small business, particularly when research questions address business operations rather than opinions. Today, it’s the largest, longest-running data set on small business economic conditions available.

“As states begin to reopen, small businesses continue to navigate the economic landscape rocked by COVID-19 and new government policies,” said NFIB’s Chief Economist Bill Dunkelberg. “It’s still uncertain when consumers will feel comfortable returning to small businesses and begin spending again, but owners are taking the necessary precautions to reopen safely.”

Real sales expectations in the next three months increased 18 points to a net negative 24%. Expectations about future sales are beginning to rebound after April’s lowest reading in survey history of a net negative 42%.

Fifty-two percent reported capital outlays in the last six months. Of those making expenditures, 35% reported spending on new equipment (down one point), 20% acquired vehicles (down one point), and 15% improved or expanded facilities (up two points). Five percent acquired new buildings or land for expansion and 10% spent money for new fixtures and furniture.

Twenty percent of owners are planning capital outlays in the next few months. Any extensive damage from recent protests will produce significant expenditures that were unexpected for some small business owners.

A net negative 19% of all owners (seasonally adjusted) reported higher nominal sales in the past three months, down eight points from April. Retail sales have declined significantly in the past three months. Consumer income was up significantly due to government programs assistance, but consumers, for the most part, could not get out to spend it unless they spent it online. The change in spending behavior produced a record-high savings rate of 33%. As the economy opens, this money will be spent.

Other key findings from the survey include:

—Earnings trends declined six points to a net negative 26%. Among owners reporting weaker profits, 46% blamed weak sales, 12% blamed usual seasonal changes, 9% cited price changes, 4% cited labor costs, and 4% cited material costs.

—Five percent of owners reported thinking it’s a good time to expand, up two points from April.

—The net negative percent of owners expecting higher real sales volumes improved 18 points to a net negative 24% of owners.

—A net 14% (seasonally adjusted) reported raising compensation (down 2 points) and a net 10% plan to do so in the coming months (up 3 points).

As reported in last week’s monthly jobs report, the small business labor market weakened further in the February-April period, with May survey respondents reporting reducing employment by 0.17 workers per firm in the prior three months. Most of the workers that were displaced (about 80%) expect to be rehired according to the Bureau of Labor Statistics. However, generous unemployment benefits are making it harder for some firms to re-call workers and fill open positions.

By Evelyn Pyburn

The US Department of Justice is taking the concerns about distorted cattle prices seriously, and an investigation is underway, according to the President of Montana Stockgrowers  Association, Fred Wacker. Wacker in discussing Montana’s beef market with the Yellowstone County News, said he has had recent contact with the Department of Justice, and while he is confident that the matter is being pursued he is not authorized to discuss details.

In an interview, Wacker not only commented on the status of the investigation, but explained the status of the cattle market in Montana and how it has been impacted by the COVID-19 crisis – a very important issue to Montana since the cattle industry is the state’s largest industry, according to Wacker. When the cattle market struggles, the state struggles.

Hopefully, the worst of the impact of the COVID-19 virus on the industry is over, according to local cattle buyer, Brian Okragly, Billings, who reported that the number of cattle being slaughtered weekly, is once again on the rise, after plummeting with the closure of the packing plants. Beef prices, too, are coming back into alignment, he said, in an interview with Yellowstone County News.

Okragly is a licensed and bonded cattle dealer, who has spent the past 27 years buying and selling feeder calves, yearlings and finished cattle.

Besides his leadership role in the Montana Stockgrowers Assoc., Wacker raises black and red Angus cattle in the Miles City area on the Cross Four Ranch. His cattle are non-hormone and non-antibiotic grown to serve outlets such as Whole Foods. Much of what he raises is sold to Europe, Japan and China.

“We raise cows and calves!” he stated. And, Montana raises the best cattle. “They are sought after,” said Wacker, “Buyers drive through four and five states to get them”

Montana’s Attorney General Tim Fox, along with AGs from 21 other states sent a letter in early May to US Attorney General William Barr, to request an antitrust investigation of the beef processing industry to determine if the packing companies have entered into agreements that thwart competitive bidding. The beef packing business in the US is dominated by four major companies.

Puzzling everyone was why cattle prices were so low for ranchers but are at record high levels at the grocery counters. In simple terms, as explained by Wacker, “We are getting $1.90 pound, but the packer is getting $4.65 per pound. ..We feel it is Ok for packers making $300, but when it is double and three times that; it is very excessive.”

The rancher typically hopes to make about $50 to $100 profit per head.

“We don’t think there is enough cattle being bartered,” Wacker said, “That’s what makes it a market.”

Another aspect of what’s happening in the cattle market is the impacts of the COVID-19 crisis, which have created shortages in the retail beef supply, which are alarming consumers. Besides meat prices in the grocery stores being at all -time highs, the shelves are often empty, and signs are commonly posted limiting the amount of meat the customer can buy.

To some extent the shortages reflect deeper problems within the industry. Beef packing plant closures have squeezed narrow supply lines and unveiled weaknesses of the highly regulated and concentrated beef industry.

It’s not just beef that has been impacted by plant closures. The coronavirus caused the closure of chicken and pork meatpackers and other food processing plants, as an estimated 12,000 plant workers tested positive for the disease and 48 workers died. Other workers went on strike, concerned about working conditions.

As of April 28, according to Bloomberg, processing plant shutdowns wiped out a quarter of the nation’s pork-processing capability and 10% of that for beef.

As the plants closed so did the processing of fat cattle – animals ready for slaughter and distribution to grocery stores and restaurants.

Before the COVID-19 virus hit, the industry was experiencing record kills nationwide of about 650,000 a week, according to Okragly. “We were looking really good,” he said, “The futures market looked good.” As COVID-19 hit workers and forced plant closures, the slaughter number dropped 200,000 animals a week – down to 450,000, and the futures market dropped 25 to 30 percent.

The reduction in the number of animals being processed, began a backlog of fat cattle and then of feeder calves, and on down the supply chain to the ranchers’ rangeland.

Not liking the prices they were being offered ranchers began deferring sales. There were reports that some producers – of cattle, pigs and chickens —  were having to euthanize animals because of no ability to place them, or feed to feed them.

With most packing plants now open and kill numbers coming back to 600,000—“almost at full capacity,” things seem to be improving, but “We are going to have backlog down the road. What that will do to feeder cattle this fall is uncertain,” said Okragly.

In addition, the carcass weight of the back-logged cattle will be heavier, by about 48 pounds per head – “that’s a lot of tonnage on the market.”

The heavier carcasses and backlog will play together and cause a build-up of numbers,” he continued. How that will work itself out with the resumption of normal supplies, “is hard to tell.” The industry has never experienced anything like this. “There is no play book for what lies ahead.”

One positive of the situation is the grain and corn prices are low, which Okragly hopes remain low. “We need to market the beef and hope and pray for a big beef demand, domestically,” said Okragly. Even at that, Okragly said he expects a market lower than it was last year at the same time – but he added predicting the cattle market is like predicting the weather.

Wacker explained that ninety percent of the calves raised in Montana are shipped to “mid-west feedlot states.” Weighing 500-600 pounds the calves are fattened to about 1400 pounds and then sold to one of the four major packing companies.

About 15 percent – around 300,000 head — of Montana calves are retained by growers who “winter” them and then sell them in the spring as “yearlings” that weigh about 950 to 1500 pounds to be “finished” in Montana feed lots.

There are no major packing plants in the state. Wacker said that he wished there were.  “I would love to see more [cattle] stay in Montana. , I would love to see more competition.  I’d like to see feed lots and a nice processing plant,” he said, “It would be a great growth thing for the state.”