The short and mid-term Covid-19 impact on agriculture: future of farming

Farmers, ranchers and agribusinesses rise to the COVID-19 challenge

Agriculture is one of the sectors of the economy dubbed “critical infrastructure” during the COVID-19 global pandemic, enabling agricultural operations from the farm gate through the supply chain to maintain operations whenever possible. The virus has disrupted parts of the marketplace and has major implications on the future of farming. Processing plants are closed down or have curtailed operations where positive COVID-19 cases have been confirmed. Other plants, thus far, have been able to continue an uninterrupted supply to consumers. Despite closures, supply chain stakeholders are optimistic that redundancies will help plants remain operational to keep agriculture supply channels filled.

Sustaining the agriculture supply chain

While social distancing and other protective measures are limiting person-to-person contact, farmers are busy planting crops in the ground. They continue to make progress where Mother Nature’s allowing it and enable the U.S. to sustain its role in the global marketplace. Fuel, fertilizer, seed and other input deliveries are still underway despite operational changes.

Still, questions remain about the long-term viability of some key markets. In China, for example, the export market is still “open for business” for U.S. corn, soybeans and small grains, according to U.S. Grains Council President Ryan LeGrand.

“Your work and ours will continue. There are additional security measures at ports, and some vessels are getting extra scrutiny. Around the world, everything is operating pretty much normally when it comes to shipments and receipts for U.S. grain,” LeGrand said. “Regular buyers like Japan, Korea and Mexico have been active recently. While there are fears from some buyers, that fear is not as strong in the U.S. Trading partners know that grain from the U.S. will arrive at their ports safely and on time.”

COVID-19 farm financial challenges

While these exemplify the resilience of American agriculture, it’s not to say the ag sector is immune to the challenges presented by COVID-19 and have a long-term effect on the future of farming. Overall bearishness in the grain markets will continue to strain profit potential for corn, soybean and small grain farmers. The good news? Most farms are on more solid footing than now than during other times of macro-level economic upheaval.

“Even though debt-to-asset ratios have been picking up lately, leverage is still historically low. This ratio exceeded 20% in the 1980s. Farm incomes have been rising last two years, but there were ongoing concerns forecast for working capital before the virus. If a banker is looking to finance a farmer with deteriorating working capital, that’s a conversation the lender needs to continue with the borrower to make sure risk mitigation measures are in place,” according to Nathan Kauffman, Omaha branch vice president for the Federal Reserve Bank of Kansas City. “While many expect weakening in loan repayment and farm income pullbacks, there are a few silver linings, like the farmland market.”

University of Illinois Agricultural Economist Nick Paulson added, “Liquidity is not trending in the direction we want, but it’s still in a historically low position compared to the late 1990s and early 2000s.”

The future of farming: planning ahead in a volatile time

The COVID-19 situation will exert more downward pressure on grain prices. In Illinois, expectations are high for above-trend yields and government support including continued direct payments or crop insurance revenue programs. Support should add up to “positive net farm incomes in 2020,” says Paulson. A lot of uncertainty remains just exactly how that will all come together, however.

“Commodity price movements in past few weeks partially attributed to COVID-19 will affect how the 2019 crop year, 2020 federal programs and 2020 insurance year price changes are going to impact on both old- and new-crop marketing,” Paulson added.

It will be imperative to plan what you need to do to yield a positive net farm income this year. Whether through market pricing, government programs or a combination of both. With the uncertainty caused by COVID-19, many answers on what the future of farming looks like won’t come easily or quickly. This will make it important to work with your farm’s stakeholders and partners. This includes your lender. Reassure you are monitoring circumstances and making informed management decisions.

Editor’s Note: This is part four in our series of the effects of the COVID-19 impact on agriculture. Explore other articles here.

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