2020 has been a year of great uncertainty and extreme swings in the ag economy. The year started out with some optimism on grain prices and improved trade conditions with China, Canada, Mexico and other countries. Then COVID-19 hit in March and everything changed.
Commodity prices for crops and livestock dropped rapidly, ethanol demand dropped and plants closed or reduced production, processing plants closed due to virus outbreaks, many hog producers were forced to euthanize animals, livestock and milk prices were well below breakeven levels. For meat producers, prices dropped when the coronavirus forced processing delays. School closures and restaurant slowdowns also impacted food producers.
Bank loan trends reflected the struggles, with a higher number of renewals and extensions, according to some bankers, as well as lower levels of repayment. Banks and ag lenders began questioning the viability of an increasing number of ag loans.
In addition to — or in some cases because of — the pandemic, among the challenges were negative profit margins in a number of products from corn to cattle. No one has been immune from the struggles the pandemic has wrought on the nation’s health or the economy, including farmers and their community banking partners.
Interest rate cuts from the Fed made refinancing higher-rate loans an option for cash-strapped farmers, and government assistance including the Coronavirus Food Assistance Program bridged the gap, making the difference for many farmers this year.
“I don’t think there is anyone right now who can truly say where the industry is headed. One thing I can say with certainty is, our farmers by and large are extremely innovative. The majority of them look forward and then look back at their own operations to continually discover and develop new and different ways in which to operate to help them manage through all of the many challenges they face,” said Darla Sikora of Citizens State Bank of Loyal in Wisconsin.
From weather disasters to an increased use of technology that is helping farmers control their own destinies, Midwestern ag bankers reflected on 2020 and looked ahead to 2021, expecting more of the same challenges and uncertainty.
What trends have you seen in 2020?
Kent Thiesse, senior vice president/senior ag loan officer, MinnStar Bank, Lake Crystal, Minn.: “Grain prices have dramatically improved during late summer and early fall, bringing many corn and soybean producers to breakeven or higher. Livestock and dairy prices have rebounded; however, some producers are still below breakeven levels. Direct government program payments … are expected to account for 35 to 40 percent of net farm income on a national basis. This will likely be the difference between positive and negative farm profit levels for many producers in 2020.”
Powell Becker, branch president Stockman Bank, Stanford, Mont.: “We continue to see stagnant commodity prices overall, which has been consistent for the past three to four years and continues to be difficult for producers to show profitability, especially for younger producers just getting started.”
Darla Sikora, senior vice president/ag loan officer, Citizens State Bank of Loyal, Wis.: “In central/north central Wisconsin, the bulk of our ag loans are in dairy. Coming into the year, we had high hopes of continued milk price improvement, which began a considerable uptick in the latter months of 2019, but then COVID hit. Initially, that threw dairy agriculture into widespread pandemonium. By April, Class III milk was down $4/cwt from January. It fell another $1 in May. After that, however, there was a significant turnaround to the positive … but then producers started seeing the negative PPDs (Producer Price Differential) and have not been paid the actual Class III price since June.
“Wisconsin has seen a continued downward trend in numbers of dairy farms over the past many years, but reports indicate this downward trend has actually slowed in 2020. Not all of these farm exits are forced, but rather some farmers were approaching retirement with no family wishing to carry on the business and/or have had opportunities to sell at favorable prices.”
Eric Fawcett, president, Bippus State Bank, Huntington, Ind.: “We have seen a rise in cover crop planting to maintain soil health, and I would anticipate this trend to continue as farmers look for ways to increase yields. Technology enhancements have also been trending upward. More farmers are using technology to monitor soil conditions, water usage and weather. The technologies being used can assist in disease and pest control and detect how much fertilizer needs to be spread on all areas of a field. Unfortunately, the most alarming trend is the consolidation of farming to larger operations and the loss of smaller operations.
“The last area I see as a trend that will continue to grow is hemp farming. We have not seen a lot of this in our area, but it is an area that farmers are researching to determine if this type of farming fits their operation.”
Ryan Cox, vice president/ag banking manager, CBI Bank & Trust, Muscatine, Iowa: “We continue to experience negative profit margins, at least for most of 2020. The prices of corn, soybeans, hogs and cattle have spent most of this year below the cost of production, resulting in financial losses for many producers. We see those factors evident in bank loan trends as well with higher levels of renewals and extensions, and lower levels of repayment.”
Editor’s note: This is part 1 of a series. Other installments feature input on the impact of COVID-19, the weather, low commodity prices and what’s ahead in 2021.