Potential second year of COVID cases worries farm lenders | 2020-10-21
Financial conditions in rural America have stabilized after being rocked by the coronavirus pandemic earlier this year, but some farm lenders say they are concerned about the prospect of another wave of economic hardship if the virus intensifies in new.
Additionally, the impact of another wave of coronavirus-related farm infrastructure closures such as processing plants and key demand outlets could be exacerbated by questions about the prospects for further ad hoc support.
“Neither Farm Credit East nor our clients anticipate the same level of support in 2021 or beyond that we have received this year, so certainly a change is expected,” Mike Reynolds, CEO of Farm Credit East, which serves a region stretching from New Jersey to Maine, told reporters Wednesday during a webinar.
“The biggest fear from my perspective is what happens if there is another second wave of COVID,” he added. “Without the same kind of support, I think the results could be significant.”
But some would say the cases are already seeing a prolonged resurgence, especially in rural Midwestern states. According to the tracking of case numbers by The Washington Post, North Dakota, South Dakota, Montana and Wisconsin are among the states with the largest spike in cases (after adjusting for population) as the country approaches a seven-day moving average of new cases approaching. the peaks observed this summer. New daily cases have increased 9.7% over the past week and hospitalizations have increased 7.8%, while deaths have increased by about 5% during the same period.
Earlier this year, economic shutdowns across the country had a prolonged and diverse impact on agriculture. COVID-19 outbreaks in packaging factories have resulted in the closure of facilities, resulting in a backlog of animals to be treated or, in some cases, depopulated if they were unable to fit them into the installations. The closure of restaurants and catering establishments has also forced the reorientation of products towards the retail sector. Less movement has also led to less fuel needed for motor vehicles and a drop in the demand for ethanol.
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Mark Jensen, CEO of Farm Credit Services of America, which serves five states stretching from Wyoming to Iowa, said problems earlier this year had the potential to drive many producers out of the business.
“I think we were a few weeks away, maybe a month or two, from a disaster, frankly,” he said. “I think it was an economic disaster brewing in terms of these producers having nowhere to go with these products and the pricing situation. … They were taking huge losses very quickly.
Jensen and Reynolds both said they have lower expectations for the same level of ad hoc support that growers have received over the past three years – Market Facilitation Program payments in 2018 and 2019 and program payments. coronavirus food aid this year – but said the impact of it will depend on each individual operation.
“You have to have your cost of production, your overall cost structure, at appropriate levels for what we think is the price,” Jensen said, specifically noting their advice to clients to get their operations to break even on the corn. price between $ 3.50 and $ 3.75 per bushel.
Farm Credit Council CEO Todd Van Hoose noted that indicators of ‘borrower stress’ lending in Farm Credit’s loan portfolio doubled between 2014 and 2019 – from around 4% to 8% – but that nonperforming loans represent only about 0.84% of the organization’s loan portfolio. .
However, Jensen said that in the absence of government intervention through COFOG, the borrower stress figure could have been closer to 16%, and lenders and producers will need to be judicious in their business. In the years to come.
“If I were to bet on more volatile or less volatile years, I would probably bet more on my money,” he said.
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