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Coronavirus

Trade wars, COVID-19 could impact 2021 ag lending

Weather is always an issue for Mid-South agriculture, but trade wars and COVID-19 could be “game-changing events” in the months ahead.

The COVID-19 pandemic burst onto the scene in late February and early March, causing massive disruptions to commodity markets and other segments of the U.S. economy in ways not seen since the Great Depression.

No one can predict what kind of lasting impact COVID-19 will have on U.S. agriculture, says Greg Cole, president and CEO of AgHeritage Farm Credit Services in Little Rock, Ark. But farmers are better prepared to handle it than they would have been in the 1980s.

“Credit quality has declined some and delinquencies have edged higher, but when you look at it we’re still at historically low levels,” said Cole, who discussed “Ag Lending and the Financial Outlook from a Mid-South Lender’s Perspective” at the seventh annual Mid-South Agricultural and Environmental Law Conference, which was held online in early June.

“So we’re going into this hurricane with a lot of plywood and some good fundamentals,” said Cole, referring to the possible coming storm from COVID-19. “Yes, we see some accounts receivable upticks, collections issues, mediation cases and bankruptcies. But, even though the percentage of bankruptcies has been up in the U.S., it’s still not rising in absolute terms.”

He said lenders, including AgHeritage, have increased their credit counseling and refinancing of debt since U.S. farm prices began falling in 2014. But equipment auctions, often considered a barometer of the farm economy, have remained about average with more retirements occurring.

“The key to the game is that a producer who has good records, a good balance sheet and a good business plan that demonstrates his ability to manage risk still can get a loan today,” said Cole, who began his career as an intern with the Farm Credit Services after graduating from Arkansas State University in the 1980s.

2021 business climate

If the COVID-19 pandemic continues to take its toll on the farm economy, growers may find a different business climate when they seek financing for their 2021 crop.

“Pre-COVID we’re hanging in there, lenders are hanging in there,” he said. “Now you have other distractions, so just because you came to your lender and you got a loan this year” — that may not happen in 2021.

“If this COVID situation continues to escalate, and there are more systemic implications to it, I would caution that if you go back in to some lenders, not all, their attitude may have changed because of unique circumstances.”

Weather is always an issue for Mid-South agriculture, he said, but the two Cs: China or the trade wars, and COVID-19 could be “game-changing events” in the months ahead.

On weather, “Last year we were way too wet, way too late with planting,” He said. “You could argue that here in the Mid-South, we still fall in that same boat this spring. But farmers in the Midwest are actually ahead of schedule with corn and soybean planting, and that really drives prices in the U S. markets.

“At the last report we're pretty well done with everything, but soybeans. We're trying to get those in right now, and we should get them in.”

Trade wars

Cole said he could spend an hour talking about the situation with China and the trade wars. “We know we had the tariff wars, and those affected the soybean price. We had the market facilitation payments, and we got China to agree to the Phase One negotiations.

“Last night, I heard that agreement may be blowing up a little bit,” he noted. “And now you have Hong Kong in the mix.”

Until 2012, he said, China was part of the big picture for the U.S. “Agriculture was really expanding on the promise that China was providing a major opportunity. We were having sales that affected land values, our income and our balance sheet. The problem is we know now there’s a lot of volatility there.

“That is going to be an irritation, I think, for years to come,” he said. “We have to keep an eye on the China situation because that could have a huge influence on our demand and affect every sector of agriculture, especially the crop sector.”

COVID-19? “We've already talked a lot about it, and it really comes down to this: That thing is evolving. The total impact is unknown. I talked about some of the keys to the game, but there's nothing about the COVID situation I see as positive.

“When you look at agriculture, it's disruptive, it's put more stress in. So we’ll continue to watch that as we go forward. In summary, there is more volatility, but I still don’t see us as being in the same situation as we were in the 1980s.”

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