As coronavirus weakens ag sector, federal payments may be key

If 2019 was stressful for farmers and ranchers, with low commodity prices and bad weather for crops, the coronavirus crisis is compounding the economic challenges this year, said three Federal Reserve banks in recently released quarterly reports. “However, government payments appear likely to provide notable relief to segments of the farm sector again in 2020,” said the Kansas City Fed on Thursday.

The Trump administration has outlined a plan to make $16 billion in cash payments to farmers and ranchers to buffer the impact of slumping grain and livestock prices, with the potential of additional payments during the summer. The USDA has not said when payments through the so-called Coronavirus Food Assistance Program will begin. Signup is expected to open around June 1, say ag leaders.

The regional Feds in Chicago, Kansas City, and Minneapolis said farm income weakened during January, February, and March as the scope of the coronavirus became apparent. Their surveys of farm lenders offered a bleak outlook for spring. Three-fourths of the lenders surveyed by the Minneapolis Fed said they expect farm income to decline during April, May, and June.

A South Dakota banker said trade war payments by the USDA helped producers survive in 2019. “If no payments are made in 2020 and commodity prices remain challenged, 2020 will see significant stress in the ag sector among the bottom 20 percent of producers.” In Indiana, a banker was “very concerned about the disruption in livestock marketing and ethanol from the pandemic shutdown.”

The Chicago Fed said 2020 “has been shaping up to be even more difficult” than 2019, “given the severe impacts of the Covid-19 pandemic and its unknown duration.” In the Minneapolis Fed district, which runs from Lake Superior across the northern Plains, a Montana banker said the pandemic made forecasting difficult: “I have no idea what will happen with the economy.”

“Through early May, cash prices [for corn and cattle] since January had declined more than 20 percent, adding pressure to already stressed farm finances in the seven states of the district,” said the Kansas City Fed. Its district runs from the central Plains westward into the Rocky Mountains.

Farmland values were relatively steady in the Kansas City district. A slight majority of lenders in the Chicago Fed’s district in the Midwest said land prices would be stable in the near term while the remaining 48 percent said they would fall.

The Kansas City Fed’s Ag Credit Survey is available here.

The Chicago Fed’s AgLetter is available here.

The Minneapolis Fed’s report is available here.