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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
7Source: Johns Hopkins University, Coronavirus Resource Center
-
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
MARCH APRIL JULY AUGUSTMAY JUNE SEPT. OCT. NOV.
FARMER MAC
Rural Areas Now Experiencing Higher Case Rates than Urban
8Source: Johns Hopkins University, Coronavirus Resource Center
-
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
MARCH APRIL JULY AUGUSTMAY JUNE SEPT. OCT. NOV.
FARMER MAC
Cases Swells Receding in Southeast, Sparking in Midwest
9Source: Johns Hopkins University, Coronavirus Resource Center
= 1,000 Cases per Million
= 10,000 Cases per Million
= 15,000 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
jtakach@farmermac.com@JacksonTakach
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