I’m writing this column from my home office in the midst of the stay-at-home battle against the COVID-19 pandemic. It has been a challenge to adjust to working and teaching from home, even if I’m still mainly using a keyboard and communicating through email and Zoom video conference technology.

Yet, I recognize that my adjustment has been easy compared to the businesses and jobs that have been displaced (hopefully temporarily), as well as the commitment and risks faced by those that continue to show up to work in essential jobs, including production agriculture and food processing, not to mention first responders and health care.

The challenges

As I write about the challenges faced by agricultural producers in the current environment, I’m reminded of the issues, risks and policies I’ve written about over the past several years. For more than two years, agricultural producers have felt the economic impact of the lingering trade war with China that has accumulated to billions of dollars in lost markets and commodity prices.

A year ago, farmers and ranchers across the state experienced the bomb cyclone and accompanying blizzard and flooding that caused loss of life, loss of property and significant damage that amounted to as much as $1 billion in the state and more beyond Nebraska’s borders.

In August, a fire at one of the nation’s largest beef processing plants disrupted markets and led to rapid and substantial declines in cattle prices. And now, the COVID-19 pandemic has caused global losses of life, health and economic activity.

Markets reacted to the bad news and increased uncertainty as they generally do, with dramatic losses in stock and financial markets that bled over into commodity markets. The combination of commodity price declines, market disruptions, and economic losses and uncertainty that can harm consumer demand, both domestically and internationally, also are preventing any signs of stability or strength in the agricultural sector at this point.

I believe all of these events have at some point been called “black swans,” defined as that thing that couldn’t be imagined or predicted because there was no sense that it could exist. But four black swan events in two years is either too much to expect or too liberal a use of the term.

And, in retrospect, one could question whether a trade war was really unpredictable given the campaign perspectives and promises that had been delivered before the 2016 election. The weather events of 2019 may have been extreme, but it was really the combination of a major weather event on top of a large snowpack on top of a frozen surface that caused damage in the state beyond expectations.

The processing plant fire may have been a random event, but the economic effects of a major shock to processing capacity were all too predictable with just basic economic analysis. Even the current pandemic has historical precedent in the 1918-19 influenza epidemic, although it was from a time before we were so globally connected in terms of communication, travel, trade and market integration.

In the wake of such extreme events, how can one be prepared? The fundamental farm management lessons still boil down to managing what you can in terms of production decisions, cost control, financial management and risk management. Of course, managing risks for things that haven’t been experienced before (or have been forgotten) can be nearly impossible.

Risk management tools, such as insurance, that are fairly priced to cover the possibility that extreme events occur often look too expensive when the perception is that the big losses aren’t possible. Talk to producers in the eastern Corn Belt who thought crop insurance was too expensive for years, until the 2012 drought paid more in indemnities than a couple of decades worth of premiums would have cost.

Talk to dairy producers who are now wishing they would have signed up this year for the Dairy Margin Coverage program, but chose not to because they thought dairy margins looked strong enough to preclude the chances of DMC program payments. Talk to grain and livestock producers who didn’t have hedges in place to protect from the cumulative losses since early this year.

This column wasn’t written to argue with hindsight that producers should have implemented risk management plans before the black swans arrived. Yes, it is a reminder that producers should work more at managing risk and using insurance and hedging tools not in an attempt to increase returns, but as a tool to manage risks and avoid catastrophic losses. But it also is a recognition that when extreme events occur that may be beyond the ability of individual producers to manage, there often is a policy response, as well, to help cushion the blow.

Policy response

The escalating trade conflict with China and other nations that led to substantial ag export losses has led to the USDA rollout of trade assistance in 2018 and 2019 to the tune of $12 billion and $16 billion, respectively. Earlier this year, the hope was that a Phase 1 agreement with China would lead to a substantial increase in U.S. ag exports that would preclude the need for additional assistance.

With the ongoing COVID-19 issues, including the disruptions to economic activity, consumer demand and trade logistics, trade volume has not kept up with the pace to meet promises. However, new promises of ag assistance, as well as existing farm programs, may help cover some of those continuing losses.

While the policy response to the trade losses has been mostly ad hoc, the policy response to the weather disasters relied first on established disaster assistance programs, including production, property, conservation and financial assistance. The passage of a $3 billion ag disaster bill in 2019 provided additional coverage for production losses to build on a producer’s underlying crop insurance protection, integrated in part with a producer’s underlying crop insurance purchase (with enrollment in the disaster program ongoing at Farm Service Agency offices).

Now, in the wake of dramatic challenges because of the COVID-19 pandemic, the policy response has been equally rapid and dramatic. Monetary policy efforts to shore up market liquidity have exceeded in only a matter of weeks the entire amount of what was done during the 2008-09 recession. Congressional action has been dramatic, as well, with an initial package of $2 trillion in assistance that rivals World War II levels for government spending in real terms. Agriculture may be just a small part of the overall package, but the legislation does include nearly $24 billion for ag assistance through USDA and additional small-business assistance programs for which agriculture also is eligible.

If there is a central point to this perspective, it is that agricultural producers need to do what they can to manage the risks that they can control. Even then, there are some risks that may be beyond the ability of individuals to control, or beyond the ability of private markets to address, that often lead to policy intervention and assistance like we’ve seen in the past two years. It doesn’t necessarily make the losses or the challenges any less painful, but it does demonstrate the role or at least the likelihood that policy will help buffer agriculture in a time of need.

Lubben is an Extension policy specialist at the University of Nebraska-Lincoln.