The U.S. Department of Agriculture is projecting a 43% increase in net farm income for United States farmers in 2020 to just under $120 billion. That may come as somewhat of a surprise after a year that featured the coronavirus pandemic — one of the biggest black swan events to ever hit the ag industry.
The agricultural lending community in Nebraska says there was nervousness about farmers' balance sheets to start 2020, which was amplified by the pandemic. However, the farm economy has turned around quickly.
James Friesen, president of Town and Country Bank in Kearney, Neb., says the recovery has been a welcome surprise.
"The early balance sheets that we’ve done have been surprisingly good. I think people were very careful with where they were spending money, here at the end of the year everything’s come together and we’re seeing advancements in liquidity and net worth gains," he says.
As expected, part of that recovery in net farm income was tied to ad hoc assistance, which accounted for $24 billion nationally. This included the Coronavirus Food Assistance Program, or CFAP.
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Tim Koch is senior vice president and chief credit officer with Farm Credit Services of America based in Omaha. He says the government payments were a critical part of farmers' balance sheets this year.
“Whether it’s, you know, paycheck protection program or CFAP 1, CFAP 2, those will just continue to accentuate what we believe will be very strong levels of farm profitability,” he says.
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At the height of the pandemic last spring, Friesen says the aid was a godsend for farmers and ranchers, for it kept many of them in business. And CFAP 2 was even more beneficial than CFAP 1.
"When commodity prices went down, revenues from the stored grains were less, but CFAP seems to come in and fill that hole. CFAP 2, I believe, is even slightly bigger than CFAP 1 in what we’ve seen," he says.
However, higher grain prices are also part of the equation, with soybeans rallying more than $3.70 off the COVID lows to the recent highs, and corn was up nearly $1.50. Tim Burr, a financial services officer with Farm Credit Services of America in the Kearney area, says the improvement in grain prices has been remarkable.
"Certainly commodity prices have recovered, and that’s been really key for helping them have some optimism; and you know there’s been some folks that have had really good crop yields."
That combination is really helping the bottom line.
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For Nebraska grain farmers, the improved prices are providing optimism for the future.
"So, it's set people up I think really a lot better for 2021 than we expected," Friesen says.
Burr says after nearly six years of depressed farm incomes in Nebraska and across the region, that will be welcome not only for farmers but the rural economy.
"Farmers are kind of well-known for the fact they’ll reinvest when they get a dollar. They’re looking to upgrade and improve their operation and be more efficient and make things better," he says.
The one sector that is still struggling in Nebraska and throughout the region is livestock, even with the CFAP payments. Many hog and cattle producers lost substantial amounts of equity when the livestock markets collapsed at the height of the pandemic. The markets melted down in reaction to COVID cases among workers in the meat packing plants, which slowed or even stopped processing. The markets have recovered from the lows set in April, and processing capacity has returned and is holding steady even with COVID cases rising in the U.S.
Plus, there is some optimism about meat demand into 2021 with the recent positive COVID vaccine news, which could eventually open up the restaurant sector. Friesen says that is giving livestock producers hope that the markets can further recover and they can get back to profitable levels.
