Economic Update Part Two: COVID-19 and U.S. Agriculture
American farmers and ranchers continue to adapt to a rapidly changing economic landscape.
As the historic events of 2020 unfold, AgAmerica’s Chief Economist Dr. John Penson has actively monitored the ongoing economic developments and their potential impact on U.S. agriculture.
In Dr Penson’s most recent assessment, he provides analytical insights and updates regarding:
- The present state of the U.S. economy;
- Influential factors affecting farm income;
- Farm bankruptcy trends and outlook;
- Fiscal response;
- Global trade;
- Food supply chain disruptions;
- Specific market trends by ag sector; and
- Financial planning strategies for 2021.
Stabilizing Factors for U.S. Agriculture Amid Economic Volatility
As the eternal optimists in their industries, American farmers and ranchers are continuously providing for our nation and the world each day in the face of unprecedented challenges. Despite historic obstacles, there are several welcomed stabilizers that ease part of the burden weighing on those who keep our nation sustained.
Low Interest Rates
According to Federal Reserve Chairman Jerome Powell, interest rates will remain low through 2022. Farmers and ranchers can benefit from a low-interest rate climate by refinancing existing debt obligations or securing additional financing with low rates to float them through if they’re experiencing a lean cash flow.
Steady Land Values
The current low interest rate environment coupled with federal ad hoc payments has kept land values steady amid a precarious market. The average rate of return on rural land equity has been 2.13 percent over the last decade, providing stable returns year after year for rural landowners.
Declined Value of the U.S. Dollar
The value of the U.S. dollar has dropped to its lowest level in nearly two years. While this means higher costs on foreign products for American consumers, it also generates more competitive prices for American farmers and ranchers who rely on global exports to earn their livelihood.
Fiscal Response
Government payments in 2020 will make up an estimated 36 percent of farm income this year, with more likely on the way. If no federal aid is extended in 2021, net farm income has the potential to fall 12 percent. However, ad hoc payments will undoubtedly continue into next year and potentially longer to help farmers and ranchers recover from the losses incurred.
The Financial Future of American Agriculture in 2021
The critical role American farmers and ranchers serve in protecting our nation’s food supply is undeniable. They are on the frontlines of the fight against the growing crisis of global food insecurity and are paying out of pocket to ensure American families have access to adequate nutrition. As 2020 rapidly nears to an end, the outlook of 2021 will depend on several influential factors.
Federal relief received thus far—among the other factors discussed above—has slowed the rate of farm bankruptcies and prevented it from reaching the record levels seen in 2010. The existing fiscal response helped mitigate COVID-19’s impact, but more support will likely be needed to fully absorb the blow to American agriculture.
No matter what the future holds, one truth remains: American agriculture isn’t going anywhere. It will evolve and adapt, but it will never disappear. Through this evolution, AgAmerica stands as a partner with our farmers and ranchers, committed to providing the resources and financial support needed to keep them thriving in good times and sleeping well in the tough ones.
Click the link below to not only gain a deeper understanding of the long-term impacts of COVID-19 on U.S. agriculture and the unique challenges facing specific agricultural sectors, but also what financial planning strategies will be most beneficial to your farm operation moving forward, according to AgAmerica’s Chief Economist Dr. John Penson.
