takach ag economy in the time of covid - home - finpack

The Ag Economy in the Time of COVID

Jackson Takach, CFAChief Economist, Farmer Mac

FINPACK 2020Lenders Conference

FARMER MAC

Agenda

2

COVID Emergence

Patterns

Ag Sector Impacts

Farm Financial

Projections

Ag Lending Impacts

COVID-19 Emergence in Rural and

Agricultural States

FARMER MAC

U.S. COVID-19 Emergence Compared to Global

4

Brazil

Italy

Spain

Sweden

United States

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

4/1/2020 5/1/2020 6/1/2020 7/1/2020 8/1/2020 9/1/2020 10/1/2020 11/1/2020 12/1/202

Num

ber

of C

ases

per

Mill

ion

Citi

zens

Active COVID-19 Cases Per Million (Last 14-Days Confirmed)

Brazil Germany India Italy Korea, South

Mexico Russia Spain Sweden United States

Source: Johns Hopkins University, Coronavirus Resource Center

FARMER MAC

Cases Slow in Rural Areas to Start, Rapid Spread in Fall

5

-

5,000

10,000

15,000

20,000

25,000

30,000

01 08 15 22 29 05 12 19 26 03 10 17 24 31 07 14 21 28 05 12 19 26 02 09 16 23 30 06 13 20 27 04 11 18 25 01 08 15 22 29 06

CO

VID

-19

Cas

es p

er M

illio

n R

esid

ents

Active Case Counts (Last 14 Days) Per Million Residents by State

California

Illinois

Indiana

Iowa

Kansas

Minnesota

Nebraska

North Carolina

Texas

Wisconsin

South Dakota

North Dakota

MARCH APRIL JULY AUGUST

Source: Johns Hopkins University, Coronavirus Resource Center

MAY JUNE SEPT. OCT. NOV.

FARMER MAC

Cases Slow in Rural Areas to Start, Rapid Spread in Fall

6Source: Johns Hopkins University, Coronavirus Resource Center

-

5,000

10,000

15,000

20,000

25,000

30,000

01 08 15 22 29 05 12 19 26 03 10 17 24 31 07 14 21 28 05 12 19 26 02 09 16 23 30 06 13 20 27 04 11 18 25 01 08 15 22 29 06

CO

VID

-19

Cas

es p

er M

illio

n R

esid

ents

Active Case Counts (Last 14 Days) Per Million Residents by State

California

Illinois

Indiana

Iowa

Kansas

Minnesota

Nebraska

North Carolina

Texas

Wisconsin

South Dakota

North Dakota

New York

MARCH APRIL JULY AUGUSTMAY JUNE SEPT. OCT. NOV.

FARMER MAC

Rural Areas Now Experiencing Higher Case Rates than Urban


-

2,000

4,000

6,000

8,000

10,000

12,000

01 08 15 22 29 05 12 19 26 03 10 17 24 31 07 14 21 28 05 12 19 26 02 09 16 23 30 06 13 20 27 04 11 18 25 01 08 15 22 29 06

CO

VID

-19

Cas

es p

er M

illio

n R

esid

ents

Active Case Counts (Last 14 Days) Per Million Residents by County Designation

Metro

Non-Metro


FARMER MAC

Rural Areas Now Experiencing Higher Case Rates than Urban


-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

01 08 15 22 29 05 12 19 26 03 10 17 24 31 07 14 21 28 05 12 19 26 02 09 16 23 30 06 13 20 27 04 11 18 25 01 08 15 22 29 06

CO

VID

-19

Cas

es p

er M

illio

n R

esid

ents

Active Case Counts (Last 14 Days) Per Million Residents by County Designation

Farming-Heavy Counties

High Food Processing Employment

All County Average


FARMER MAC

Cases Swells Receding in Southeast, Sparking in Midwest


= 1,000 Cases per Million



= 1,000 Active Cases

= 20,000 Active Cases

FARMER MAC

Summary

Rural cases started slower

Rural cases hit in October, falling now

Ag sector survived first

tests

Farm Labor Pools

particularly affected

Farming areas peaked in Nov., down in Dec.

10

Agricultural Impacts

FARMER MAC

Big Challenges for Ag in the first Half of 2020

12

Demand• No schools• Empty restaurants• No driving

Supply Chain• Grocery stores pressed• Food supply chain ripples• Meat processors

Foreign Woes• Brazil and Argentina press on• Weaker Global GDP• China?

-100

-50

0

50

% of Restaurants Taking Seated Reservations

-56%

57%

Restaurant Reservations Still Off

% Restaurants Taking Reserv.

-50

0

50

Mobility Index of US Grocery

-36%

-42%

Drop in Cattle Processing in April

Drop in Hog Processing in April

3/1/2018 9/1/2020

3/1/2018 12/1/2020

0

50

100

Tri

llion

s

Global GDP

-4.9%Expected Drop in Global GDP in 2020

FARMER MAC

We’re Eating at Home More (and are likely to keep it up)

-5

0

5

10

15

20

25

30

35

40

45

0

10

20

30

40

50

60

70

80

90

Gap

At-

Hom

e to

Aw

ay-f

rom

-Hom

eBill

ions

Mon

thly

Ret

ail S

ales

(S

A)

Bill

ions

Advance Retail Sales for Food and Beverage Services and Stores

Gap Food and Drinking Places Food and Beverage Stores

13Source: US Census Bureau Data

FARMER MAC

Commodity Prices Stabilize (Weak Dollar Booster)

Soybeans +25%

Wheat +25%Corn +12%

Almonds -25% (6%)

Live Cattle -12% (8%)

Lean Hogs +7%

50

60

70

80

90

100

110

120

130

140

Class III Milk -20% (6%)

Source: USDA, AMS; Bloomberg Data

Prices bottomed at -20% in May/June

Price Change

FARMER MAC

Timeline and Relative Impact of Support

15

$100 BillionBasic

Assistance

$8 BillionVaccine

Development$2 Trillion

CARES Act (Kitchen Sink)

Phase 3Mar 27

Phase 2Mar 18

Phase 1Mar 6

Next

Democrats? Republicans?

FARMER MAC

CARES PPP Payments (by industry)

16

149,535

$0

$10

$20

$30

$40

$50

$60

$70

$80

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

Bill

ions

PPP Round 1 by Industry NAICS

ApprovedLoan Count

Approved Dollars

# Loans =

$ Loans = $8.1B

Source: SBA PPP Report, June 30, 2020

FARMER MAC

CFAP 1 and 2 Payments to Date ($22 billion)

17Source: USDA CFAP 1 and 2 Reports, December 4, 2020

Dairy, 13%

Non-Speciality

Crops, 38%

Livestock, 37%

Speciality Crops, 12%

FARMER MAC

How big has the government response been?

18Source: USDA ERS Farm Income and Wealth Statistics

0

5

10

15

20

25

30

35

40

45

50

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020F

Bill

ions

Conservation CFAP and other ad hoc disaster assistance Market Facilitation Program ARC/PLC Other programs

Farm Financial Projections

FARMER MAC

0

20

40

60

80

100

120

140

160

180

Far

m

Inco

me

(Bill

ions

)

Farm Financial Ratios – Net Income

Source: USDA, Economic Research Service, December 2020 Farm Income and Wealth Statistics

U.S. Net Farm Income (NFI)

2000 – 2018NFI average

U.S. Net Cash Farm Income (NCFI)

2000 – 2018 U.S. NCFI average

20

FARMER MAC

2020 Decrease Offset by Government Support

Source: USDA, Economic Research Service, December 2020 Farm Income and Wealth Statistics data; Author’s Calculations

Total Gov’t Direct Payments Over $46

billion, a record

21

FARMER MAC

Farm Financial Ratios – Solvency

0

5

10

15

20

25

1960 1970 1980 1990 2000 2010 2020F

Sector Debt/Asset Ratio

22Source: USDA, Economic Research Service, December 2020 Farm Income and Wealth Statistics data

Continued Rise in Debt

• Higher real estate secured debt

• Stable operating debt

• Lots of refinancing at record-low rates

Uptick in Asset Values

• Stable to rising real estate

• Lower inventory levels

• Higher financial asset values

FARMER MAC

Land Values Look to Hold in 2020

23

Potential warning signs

• Banker expectations

• REIT performance

• Auction data

Mitigating factors

• Interest rates

• Buyer interest

• Limited supply

FARMER MAC

Farmland Values Holding – Declines in Western Ag

Source: NCREIF Farmland Value Index (https://www.ncreif.org/data-products/farmland/)

-3

-2

-1

0

1

2

3

4

U.S. Total Corn Belt Southern Plains Southeast Pacific West Pacific Northwest

% Change in NCREIF Farmland Index

6/30/2019 9/30/2019 12/31/2019 3/31/2020 6/30/2020 9/30/2020

FARMER MAC

Farm Financial Ratios – Liquidity

25

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

1960 1970 1980 1990 2000 2010 2020F

Sector Working Capital to ExpensesExpenses Fall Small

• Sticky seed prices and rental rates

• Higher and more uncertain labor costs

Declining Current Assets

• Lower ending stocks decrease asset levels

• Decline in liquid assets partially offset with cash from payment programs

Source: USDA, Economic Research Service, December 2020 Farm Income and Wealth Statistics data; Author’s Calculations

FARMER MAC

Farm Financial Ratios – Interest Coverage and Cash Flow

26

-

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

1960 1970 1980 1990 2000 2010 2020F

Farm Interest Expense / EBITC

Source: USDA, Economic Research Service, September 2020 Farm Income and Wealth Statistics data; Author’s Calculations

Interest Expense Saves

• More debt but…

• Low rates

• Greater fixed rate financing

Earnings Lower

• Near-record Debt-to-Earnings

• But debt is more serviceable and lower interest rate risk

FARMER MAC

Agricultural Exports an Area of Focus

$0

$20

$40

$60

$80

$100

$120

$140

$160

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020F

Bill

ions

Total Value of U.S. Agricultural Exports

Value of Exports

27

38%

0%

20%

40%

60%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020F

Ratio of Ag Exports to Agricultural Cash Receipts

All Other States

Source: USDA, Economic Research Service

FARMER MAC

Summary

28

Farm Incomes Up Significantly in

2020

Delivery of Gov’t Support and Low

Interest Rates Keys

Liquidity Healed But Not

Completely Out of the Woods

Look Ahead to 2021 – Global

Drag Could Cause Headwind

COVID and Economy Will Continue to be Critical to Ag

Farm Lending Impacts

FARMER MAC

Farm Lending on the Rise

Focus on Real Estate-Secured

Interest Rates Incredibly Low

Pull-back from Banks

Farm Credit System and Others Press

On

Delinquencies Up but Not Runaway

30

FARMER MAC

National Lending Trends

150

155

160

165

170

175

180

185

190

195

200

205

Sep-17 Sep-18 Sep-19 Sep-20

Bill

ions

Outstanding Farm Debt by Major Lender Type

Banks Farm Credit System Institutions

31Source: FDIC Call Report SDI Data; Farm Credit Administration Call Report Data

FARMER MAC

Wrapping Up

Food value chain shows

strength

Foreign markets on watchlist

Gov’t payments support farm

economy

Lenders still in, banks slightly

distracted

Farm financial system stressed

but not falling apart

32

FARMER MAC

Thank You

Jackson Takach, CFAChief Economist

[email protected]@JacksonTakach

takach ag economy in the time of covid - home - finpack

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