SUSTAINING THE AG SUPPLY CHAIN THROUGH CRISIS

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

Farmers and ranchers aren’t immune to the angst surrounding the rapidly evolving COVID-19 pandemic and the protective measures intended to prevent the virus’ spread. But “social distancing” is nothing new for many people in agriculture given the nature of the day-to-day work of operating a farm or ranch. Farmers, ranchers and agricultural workers are doing everything they can to maintain life and work as “normal.” It’s easier to socially distance in rural America.

Agriculture is one of the sectors of the economy dubbed “critical infrastructure,” enabling agricultural operations from the farm gate through the supply chain to maintain operations whenever possible. The virus and its human reactions have disrupted some parts of the marketplace — with a few meat processing plants closing down or curtailing operations where positive COVID-19 cases have been confirmed — but many supply chain stakeholders are optimistic that redundancies in the system will help continue the majority of plants operational to keep supply channels filled.

Sustaining the supply chain

Though some meat processing plants have closed down or slowed operations where cases of COVID-19 have been confirmed, other plants have thus far been able to pick up the slack and continue an uninterrupted meat supply to consumers. While social distancing mandates and other protective measures are limiting direct person-to-person contact, row crop farmers in the Midwest are busy getting the 2020 corn and soybean crops in the ground. Though some operations have changed, fuel, fertilizer, seed and other input deliveries are still underway, and farmers are continuing to make progress where Mother Nature’s allowing it.

Those efforts and others like them further down the grain supply chain are enabling the U.S. to sustain its role in the global marketplace. Though questions remain about the long-term viability of some key markets — 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, but 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, and 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 its human response. Overall bearishness in the grain markets will continue to strain profit potential for corn, soybean and small grain farmers. The good news is most farms are on more solid footing than they’ve been during other times of macro-level economic upheaval like the one COVID-19 has caused. 

“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 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 an historically low position compared to late 1990s and early 2000s.”

Planning ahead in a volatile time

The COVID-19 situation will exert more downward pressure on grain prices, but at least in Paulson’s state of Illinois, expectations for above-trend yields and government support — from either continued direct payments or crop insurance revenue programs — should add up to “positive net farm incomes in 2020.” 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.

Moving forward, 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 of those answers won’t come easily or quickly. This will make it important to work with your farm’s stakeholders and partners — including your lender — in monitoring circumstances and making informed management decisions.

Farmers and ranchers are no strangers to a challenge like the one posed by COVID-19 today. While the virus and its human reaction have created new challenges for everyone, farmers and ranchers continue to operate generally unimpeded. At Conterra Ag Capital, we have witnessed producers working through adversity and expect this to be no different. We will continue to support customers and others in the ag sector to ensure we not only sustain the world’s food supply chain, but ultimately add strength to agriculture, the backbone of the U.S.

If you have questions about how Conterra Ag can contribute to your farm or ranch’s financial management through the COVID-19 pandemic, contact us today.

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