URBANA, Ill. — A March 27 webinar focusing on effects of the COVID-19 pandemic on farm finances hosted by the University of Illinois farmdoc team helped shed light on farmers’ expected financial health moving forward. As part of the discussion, panelists Nick Paulson, associate professor of farm economics at the U of I, and Nathan Kauffman from the Federal Reserve Bank of Kansas City identified sectors of agriculture facing decreases in commodity prices that are directly traceable to the novel coronavirus pandemic. 

Paulson led off the webinar with an overview of U.S. unemployment claims-- a record 3.2 million in one week alone, according to the U.S. Department of Labor-- before moving on to the pandemic’s effects on the Illinois grain market. “From a liquidity standpoint, things are not trending in the direction we want, but on average we’re still in a pretty decent, or not historically low, position compared to where we were at in the late 1990s and early 2000s,” Paulson told the estimated 425 webinar attendees. 

As for farm solvency, “We’ve been trending down in terms of the amount of leverage grain farms in Illinois actually carry,” Paulson said. “Farm balance sheets for grain farms in the Midwest are strong, but from a liquidity and solvency perspective things are not moving in the direction we want to see.”

The U of I economist didn’t mince words when it comes to the 2020 net income picture for Illinois grain farms. “2018 and 2019 would not have looked as good as they do (on a graph) in the absence of some of the government support we had. When we look at the 2020 net income picture pre-COVID-19, we were looking at maybe a $3.90 corn price and maybe a $9.20 soybean price. With that, we will need above trend yields or some sort of income support similar to what we had in 2019 to be looking at a positive or at least non-negative net income year for 2020,” said Paulson. 

“As the uncertainty has increased, we have had some commodity price movements in the past four to six weeks at least partially credited to COVID-19 that are going to affect things like our existing safety net programs not only for the 2019 crop year but the 2020 year for those programs and insurance. Changes in prices are going to affect the impact of old crop marketing that still needs to be done by many farmers, as well as looking ahead to marketing the 2020 crop,” he added. 

Other possible financial impacts of COVID-19 on agriculture may include fluctuations in input prices-- in both positive and negative manners-- and how the federal $2 trillion federal stimulus package’s allocation for agriculture will be distributed amongst commodities, Paulson concluded. 

Kaufmann, vice president and Omaha Branch Executive for the Kansas City Fed, said the Federal Reserve is viewing the coronavirus pandemic as a “health care crisis with an uncertain outcome.” He reported that though some sectors of agriculture are suffering repercussions from COVID-19, such as the dairy industry, overall farm health is good with farmland values holding steady.  

“(COVID-19) has not yet been a banking crisis. This is a fundamentally different kind of development we’ve been facing the past few weeks relative to the recession and financial crisis of ‘08-’09 which was squarely focused on the banking sector,” Kaufmann said. “Second, nothing suggests there is anything fundamentally wrong with the U.S. economy. It is squarely connected to healthcare, so the path I see going forward will likely be directly tied to progress in terms of resolving (health) issues surrounding the virus.”

A global collapse in demand for certain segments of goods and services has touched agriculture, however, including price changes in key markets including cattle, milk and corn, Kaufmann said. 

“This is very much a global economic crisis, but it has hit other markets much more severely. You can see what’s happened in equity markets, the S&P 500, or crude oil,” he said. “There has been a noticeable pickup in volatility; we’ve heard a lot about the cattle market. But again, it pales in comparison with what we’ve seen in crude oil and markets connected to energy.”

The Federal Reserve remains concerned with sharp price declines in the U.S. cattle market, along with the ethanol and biofuels sectors, as the coronavirus threat has developed, Kaufmann said. The Fed is also keeping an eye on possible declines in farmers’ “non-farm” income, or income derived from off-farm employment that could be impacted by COVID-19, that could affect the overall farm income picture. 

Delivery of food products through the agricultural supply chain and strong farmland values are two positive aspects of the post-COVID-19 ag economy, according to Kaufmann. 

Recordings and slides from the webinar may be accessed at www.farmdocdaily.edu.com using the farmdoc YouTube portal.