With falling prices and lower incomes, farmers across the Federal Reserve Bank’s 10th District felt the pressure of the COVID-19 pandemic during the first quarter, according to a report from the Federal Reserve Bank of Kansas City.
Prices of cattle and corn decreased by 15% between January and early May, according to the report. A large share of bankers reported lower loan repayment rates in the first quarter.
The Fed’s 10th District includes western Missouri and all or parts of Colorado, Kansas, Nebraska, New Mexico, Oklahoma and Wyoming.
Jimmie Long has been buying and selling cattle in Missouri for 25 years. He is one of many farmers who have been impacted by the volatility of farm markets and the decrease in farm income since the pandemic began.
“The cattle prices have slipped back, and there’s a lot of stress on a lot of families,” Long said.
COVID-19 outbreaks at meat processing plants, and those plants’ subsequent closures, have created a bottleneck situation in which market-ready animals are not being utilized by meatpacking plants. As a result, farmers are receiving a lower price for their livestock. But the shortage of meat on store shelves has increased meat prices for consumers, said Kelly Smith, senior director of marketing commodities at the Missouri Farm Bureau.
“Farmers are receiving less for their livestock today as consumers are paying more for meat because the supply and demand on each side is affecting the other one,” Smith said.
With travel restrictions and stay-at-home orders in effect, the demand for gasoline decreased and ethanol production slowed down in the first quarter, according to the report.
Responding to this drop, corn farmers who own or supply ethanol plants may decide to pivot their production from corn to another grain, Smith said. The fall in demand adds pressure on corn and soybean producers who are already facing the effects of the trade disputes with China, he said.
“The export markets are what is of concern for grain producers,” Smith said. “The U.S.-China continual spat on trade is a concern, and we are not exporting soybeans at the level that we once did.”
Many farmers had secured financing for their farming operations before the pandemic hit, but revenue generation abruptly plummeted in the first few months of the year, Smith said.
While lower interest rates are welcomed by farmers, they are often used to pay off their current loans, Smith said.
“No farmer ever wants to borrow more money if they don’t have to,” he said.
FCS Financial, an agricultural lender with 21 locations in Missouri, finances more than 14,000 farming operations in the state. Roughly half of the loans it has made since the pandemic began are used by farmers for refinancing existing debt, said Rob Guinn, vice president of traditional and part-time farmer segments at FCS Financial.
“The biggest concern we have is just how long the pandemic and its effects will last,” Guinn said.
If the pandemic prolongs and farm incomes continue to fall, the low net incomes from farm operations can affect real estate value, Guinn said. FCS Financial participated in the Paycheck Protection Program, which Guinn said helped the lender inject liquidity into many farm operations and benefitted borrowers.
Another concern is that the carryover, the amount of crop left over, could accumulate by the end of the year, which could hurt prices for 2021, Smith said. Farmers may also face trouble arranging for finances for another year of farming, he said.
“When things start to slow down in an economy and especially in the ag world, bankers tend to pull their wings in,” he said, “and it becomes harder for farmers to borrow money for operating.”