By Mary Lou Peter
Early on in the COVID-19 virus pandemic, it looked like agriculture might be an area that would maintain some semblance of normalcy. Farmers and ranchers tend to work in more solitary conditions than people working in suburban and urban office buildings and service industries, so would be less likely to get sick themselves. They could go on helping produce the world’s food supply.
That sense of security, if there was one, was short-lived however, with shifts in demand linked to closed restaurants and schools disrupting food supply chains, compounded by new coronavirus outbreaks among meat packing plant employees that resulted in temporary closures and more disruption to livestock marketing channels.
Using 2019 Kansas Farm Management Association members’ average net farm income as a baseline, a team of Kansas State University agricultural economists is estimating that net farm income in 2020 will fall from an average of $110,380 in 2019 to $14,358 in 2020, a drop of 87%.
The 2019 number was bolstered in large part by Market Facilitation Program payments provided to farmers to buffer the disruptive effects of trade disputes with other countries that were occurring prior to the pandemic.
Not all Kansas farms are KFMA members, but the data provides insight into the profitability and financial structure of Kansas agricultural producers.
“The COVID-19 virus has impacted nearly every aspect of life and Kansas agriculture has not been exempt,” said Gregg Ibendahl, farm management specialist with K-State Research and Extension.
He and colleagues Daniel O’Brien and Kevin Herbel recently authored A Preliminary Estimate of 2020 Kansas Net Farm Income. Even without considering the 2019 MFP payment, the decline would be 71%.
A similar article looking more in-depth at the livestock sector was written by agricultural economist Glynn Tonsor.
Grain farms, which comprise about two-thirds of all KFMA operations, are expected to earn a lower net income than in 2019, but similar to 2019 without the MFP payment. Crop insurance and government program payments will help make up for a shortfall in grain prices.
The extension agricultural economists estimate that farms focused more heavily on livestock production – about one-third of KFMA farms – are expected to fare worst, with the average net farm income falling from $35,552 (without the MFP payment) to a negative $14,934, a decline of 142%.
The estimates do not take into account payments that might come from the Coronavirus Food Assistance Program announced by the U.S. Department of Agriculture on May 19.
The economists noted that at the beginning of 2020, Kansas farmers were coming off a year when net farm income had risen four years in a row.
“Producers were hopeful that 2020, with the trade agreement with China in place, could at least match the profitability of 2019,” Ibendahl wrote in the article. “However, the coronavirus has drastically altered those expectations.”
The authors, he said, provided the estimates to give farmers guidance about how the virus might affect their net farm income this year.
They estimate that most revenue sources – beef, milk, swine, corn, soybeans, wheat and grain sorghum -- are expected to decline in 2020 compared with 2019, although less so in wheat and grain sorghum than the other commodities.
Offsetting the lower revenue in 2020 is a potential for higher government payments (primarily in the Price Loss Coverage program for some crops) and some lower expenses, especially for fertilizer and diesel fuel, Herbel said.
Even with the MFP payment, 18% of KFMA farms lost money in 2019. In 2020, an estimated 40% of those farms will lose money. Nearly 70% of farms will earn a net income below $50,000, which is far below the typical family living needs, Herbel said.
“This is expected to be a difficult year for nearly every Kansas producer,” Ibendahl said, but added that the analysis is not the end of the story.
In addition to the new Coronavirus Food Assistance Program (CFAP), the Coronavirus Aid, Relief and Economy Security Act (CARES) and the CCC Charter Act have collectively committed to providing $16 billion in direct assistance to producers of non-specialty crops, livestock, dairy and specialty crops that have experienced a significant price loss between mid-January and mid-May and/ or face significant additional marketing costs.
The team plans to continue to follow developments and will update their estimates in coming months as the government programs are finalized.
Source : k-state.edu