The State of Ag Lending During COVID-19

How Farmers Are Financially Preparing for the Future

AgAmerica CEO and President, Brian Philpot, recently discussed the changing economic landscape in agriculture from a financial perspective with the voices of the Global Ag Network, Delaney Howell and Mike Pearson. Below are some highlights from the podcast, including how to build working capital to cover input expenses through ongoing uncertainty.

Updates on the COVID-19 Impact on Agriculture

Disruptions from COVID-19 ripple through the agricultural industry, with some sectors feeling the impacts more than others. The U.S. Energy Information Administration (EIA) reported a record low in weekly ethanol production at 3.9 barrels. Lack of government assistance plus the largest stockpile of stored ethanol (27.69 million barrels) in history is creating a double-edged sword of trouble for ethanol producers, translating to potential losses for corn growers.

Livestock and pork producers are also experiencing their own set of challenges with an increasing number of plant closures slowing down meat processing. Tyson reported plant closures in Minnesota, Indiana, and Iowa, making up 15 percent of pork production in the U.S. Pork producers are feeding hogs restrictive diets to maintain weight and hope for the reopening of plants to prevent a severe food supply chain disruption.

New government legislation provides additional relief for agricultural sectors impacted by COVID-19, with the exclusion of ethanol. A $484 billion coronavirus deal was passed, with $320 billion allocated to replenish the Payment Protection Program (PPP) fund. Agriculture operations with 500 or fewer employees are also eligible for the Economic Industry Disaster Loans (EIDL), a seemingly “separate pot of funding for agriculture” to weather the economic storm.

Read more about the global impact of COVID-19.

How Land Values Have Fluctuated Since COVID-19

Government funding will temporarily relieve a pressurized commodity market, but is it enough? Despite slight softening in real estate sales, one asset holding steady is land value. Philpot says what variation he does see in land values is on a state-by-state basis.

For example, the Midwest region saw evaluation trends shoot up during commodity booms but have remained steady since leveling off. Other regions affected by the credit bubble in 2008 dipped during that time, but have since stabilized without substantial fluctuation. Therefore, it seems land values are more affected by geographic location rather than the current volatile economic state from the COVID-19 crisis. Stability in land values can largely be attributed to a low-interest rate climate and the supply of strong capital for investment opportunities.

Shifts in Agricultural Lending

Trends in commodity and land value markets are leading to a reshaping of agricultural lending behavior. Philpot reports there has been an increase in refinance opportunities over land purchases. Although there is an uptick in growers seeking payment relief, farmers and ranchers have been conditioned to withstand volatile markets through adequate preparation. Rather than desperate farmers seeking immediate financing relief, the majority of borrowers are proactive in investigating refinancing options to secure working capital for operational expenses. Agricultural lending behavior is subject to evolve further as we await several key factors.

• Length of the pandemic;
• Consumer behavior; and
• Government support.

Thus far, the agriculture lending sector is not expected to experience a major default crisis as commercial and residential real estate is beginning to see.

Three Ways Farmers Can Financially Prepare in Uncertain Times

“Have access to capital and don’t take too many chances.” Philpot shares three useful strategies farmers and ranchers can implement now that will put them in a better position for the future.

 1.  Secure Access to Working Capital

Now is the time to assess the capital you have available and talk with a lender about your borrowing capacity. Having adequate access to cash flow removes the pressure to delay necessary purchases such as seed, fertilizer, or livestock feed because of funding challenges. Securing enough capital now will help you better withstand potential volatility later.

2.  Lower Current Interest Rates

Free up necessary working capital by assessing your existing debt. Discuss options to consolidate debt and lower your current interest rate or refinance existing land equity. Re-evaluating existing debt can free up needed capital through lower payment plan structures.

3.  Avoid Unnecessary Risks

Wait for clarity before making any risky business decisions. The length or scope of this pandemic remains murky, with more questions than answers. Stay plugged into your operation’s KPIs, discuss smart financial moves with your lender, and don’t do anything too hasty.

 “Make decisions on the facts at hand,” says Philpot. “There’s still a lot of facts we don’t know.”

The AgAmerica Difference

AgAmerica is a nationwide non-bank lender with a singular focus on agricultural land. We remain open and operating through the COVID-19 pandemic and are determined to continue serving the American Farmer during this unprecedented time. We are committed to providing our clients with the resources needed to improve the financial structure of their operations. If you would like to learn more about our flexible loan programs, connect with one of our local Relationship Managers today.