Ag Economy Showing Some Signs of Improvement, but Risks Remain Ahead

Agricultural credit and farmer financial conditions are both a big concern in 2020 when COVID-19 ramped up earlier this year. Nathan Kauffman is Vice President and an executive of the Omaha, Nebraska branch of the Kansas City Federal Reserve. Speaking at the NAFB 2020 virtual convention, Kauffman says the ag economy is showing some signs of improvement.

“It’s worth emphasizing that this outlook has been far-improved from six months ago. It’s still not to suggest that the outlook is necessarily positive but, six months ago, some of the conditions were rather concerning in agriculture, especially as we looked to April and May, or really the second quarter of the year. There are still risks in the sector, and as we go into 2021, I suspect that some of the risks and concerns that we’ll be discussing are largely those that we’ve been discussing for the last several years.”

He says going into 2020, U.S. agriculture had been in a “gradual but persistent downturn” for the past 6-7 years. USDA said liquidity in the ag sector was predicted to be 15 percent lower coming into the year, even before COVID. Kauffman highlights four specific factors that made things rougher for agriculture during COVID-19.

“The four that I want to highlight are as it relates to developments surrounding travel. Obviously, we know that the restrictions and shutdowns that took place early on had a tremendous impact on our economy. Supply chain disruptions will be a second one, and then the shift from restaurants to grocery stores would be a third, and then I want to talk about exports and the value of the dollar as a fourth component.”

Things appear to be improving in the ethanol industry.

“Whereas we were seeing sharp declines in travel and gasoline consumption, and thereby ethanol consumption and therefore production, ethanol has returned to about 95 percent of its pre-pandemic level here most recently, keeping in mind that we were off by about 50 percent during April. That’s the first that I would highlight, that travel has picked back up. Again, there are concerns about COVID resurgence, but still recognizing that has improved.”

The meatpacking industry was hit hard in the early days of COVID-19, but Kauffman said production has ramped up since then.

“Many of our meatpacking plants are operating at near their pre-pandemic levels, so whereas they were operating at around 60 percent capacity, those are operating close to the mark where they had been prior to the pandemic. And so, the bottlenecks that had emerged in the early months that were weighing heavily on our livestock markets are also considerably better.”

Consumer food-buying patterns are still a question mark, but they are starting to purchase more food at restaurants.

“Many households are still looking to buy food at other locations; that would be grocery stores and restaurants as opposed to just restaurants, which does have implications for food prices and the commodities that go into that. But, at the same time, the purchases are only down by 10 percent as opposed to down by 50 percent in the earliest months of the pandemic. So, many restaurants have found ways of delivering food or providing curbside service, or even other things that are ultimately able to meet the needs of consumers, so that is the third point.”

One of the biggest reasons for optimism in agriculture is the rising export numbers, which he says is much-needed good news for U.S. farmers and ranchers.