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COVID-19: Agriculture's ominous feeling about the pandemic

Minneapolis Fed’s first-quarter 2020 agricultural credit conditions survey detects some coronavirus impacts

May 6, 2020


Joe Mahon Director, Regional Outreach
COVID-19: Agriculture's ominous feeling about the pandemic key image
Robin James/Getty Images

Article Highlights

  • Farm incomes fell again as commodity prices remained weak

  • Ag bankers concerned about pandemic’s impact on commodity markets, meat processing

  • Outlook is pessimistic, with greater uncertainty than usual

COVID-19: Agriculture's ominous feeling about the pandemic

The COVID-19 pandemic came at a particularly bad time for agriculture. After multiple years of low commodity prices and a trade war that constricted access to overseas markets, the extreme disruption in the broader economy was the last thing farmers wanted to see. “Coronavirus decreasing grain market, oils and commodities markets,” said a Minnesota agricultural lender.

The Minneapolis Fed’s first-quarter agricultural credit conditions survey, conducted during April, sheds some light on the early impacts of the pandemic on farmers and ranchers. Farm incomes fell from January through March relative to a year earlier. Spending on capital equipment and farm household purchases also decreased. Falling incomes pushed the rate of loan repayment down, while renewals and extensions increased. Respondents noted that cropland values generally decreased.

The closure of several livestock and poultry slaughter plants due to virus outbreaks among workers had many livestock producers concerned about the impacts on the food supply chain and whether there would be markets for animals. “If the meat packing industry does not change, it could be the final nail for most producers,” one South Dakota banker said. The outlook for the second quarter was for continued contraction, although several respondents noted great uncertainty due to the pandemic.

Farm income, household spending, and capital investment

More than two-thirds of district lenders surveyed (69 percent) reported that farm incomes decreased in the first quarter of 2020 compared with the first quarter of 2019. A similar proportion of respondents said capital spending by farming operations was down. By comparison, household spending was more stable, as 63 percent of lenders reported that it remained flat, while 36 percent reported that it fell.

Conditions appeared worse in the western part of the district, as 79 percent of lenders in the Dakotas and Montana reported decreased income. About two-thirds of Minnesota lenders said incomes fell. In Wisconsin, by contrast, half of those surveyed reported increased or unchanged income (though that percentage came from a relatively small number of total respondents). Wisconsin results for household and capital spending were more in line with the district as a whole.

Loan repayments and renewals

Given tight finances for farmers, the rate of repayment on agricultural loans dropped, while renewals increased. Loan repayments decreased for half of respondents, while the other half reported that repayment rates were unchanged. Just over half of lenders—52 percent— reported a greater number of loan renewals or extensions, while nearly all of the remainder said renewal activity held steady. Again, financial conditions were more negative in the west: 68 percent of lenders in the Dakotas and Montana noted lower rates of loan repayment, compared with 30 percent in Minnesota and Wisconsin.

Demand for loans, required collateral, and interest rates

Downward pressure on farm incomes pushed demand for loans up on balance, according to bankers. Equal numbers of respondents indicated that loan demand increased or was unchanged—43 percent each—compared with only 14 percent who noted decreases. The amount of required collateral increased at some agricultural banks, though more than three-quarters reported no change in collateral requirements. In one bit of relief for farmers and ranchers, interest rates fell substantially. Average fixed and variable rates on operating, machinery, and real estate loans all decreased in the first quarter by about 50 basis points or more from the end of 2019.

Cash rents and land values

Agricultural land values continued to retreat further from their peaks of about six years ago, though they remain strong relative to historical levels. Ninth District nonirrigated cropland values fell by 2.3 percent on average from the first quarter of 2019. Irrigated land values increased slightly less than 1 percent, while ranchland values were nearly unchanged. The district average cash rent for nonirrigated land was also nearly unchanged from a year ago. Rents for irrigated land and ranchland rents increased 1.4 percent and 1.6 percent, respectively.

Land values fell the most in Wisconsin, where lenders reported that nonirrigated cropland prices dropped almost 9 percent from a year ago. In Minnesota, by contrast, values for the same class of land were down by half a percent; values in the Dakotas fell by between 2 percent and 4 percent. Cash rents on nonirrigated land also fell the most in Wisconsin—7.5 percent. Those rents also declined 2.5 percent in South Dakota but increased slightly in Minnesota and North Dakota.


“In 2019, most producers survived because of MFP payments,” wrote a South Dakota lender, in reference to the Market Facilitation Program that the U.S. Department of Agriculture has used to support farmers negatively impacted by the trade disruptions. “If no payments are made in 2020 and commodity prices remain challenged, 2020 will see significant stress in the ag sector among the bottom 20 percent of producers.”

Expectations heading into the growing season were generally pessimistic. Across the district, 75 percent of lenders predicted that farm income will decrease in the second quarter of 2020, compared with 5 percent forecasting increases. The outlook for capital spending is similar, with 77 percent expecting decreases, while 48 percent expect farm household spending to fall. Expectations call for increased loan demand in the upcoming quarter, according to 61 percent of respondents, compared with a third who see no change. The outlook for loan repayment was generally lower, though slightly more than half expect no change in repayment rates. Lenders expected renewals to increase on average, but most said collateral requirements would remain unchanged.

However, several commenters noted that increased uncertainty due to the COVID-19 outbreak made forecasting more difficult than usual. “I have no idea how these events may affect these markets,” said a Montana banker. “I have no idea what will happen with the economy.”

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Appendix - State Fact Sheet
Agricultural Credit Conditions Survey
First-Quarter 2020
Note: The Upper Peninsula of Michigan is not part of the survey.
 MNMTNDSDWINinth District
Percent of respondents who reported decreased levels for the past three months compared with the same period last year:
Rate of loan repayments 33 100 71 60 17 50
Net farm income 64 100 76 79 33 69
Farm household spending 36 50 47 29 17 36
Farm capital spending 72 100 59 79 67 70
Loan demand 20 12 7 17 14
Percent of respondents who reported increased levels for the past three months compared with the same period last year:
Loan renewals or extensions 54 50 65 40 33 52
Referrals to other lenders 13 7 14
Amount of collateral required 28 12 27 17 22
Loan demand 56 47 20 33 43
Appendix - State Fact Sheet - Outlook
Agricultural Credit Conditions Survey
First-Quarter 2020
Note: The Upper Peninsula of Michigan is not part of the survey.
 MNMTNDSDWINinth District
Percent of respondents who expect decreased levels for the next three months:
Rate of loan repayments 40 100 53 50 17 45
Net farm income 80 100 82 79 17 75
Farm household spending 52 100 59 36 17 48
Farm capital spending 84 100 76 79 33 77
Loan demand 12 17 6
Percent of respondents who expect increased levels for the next three months:
Loan renewals or extensions 60 100 71 43 33 57.81
Referrals to other lenders 4 6 14 11
Amount of collateral required 20 6 26 17
Loan demand 68 100 71 43 33 61
Agricultural Interest rates from the Federal Reserve Bank of Minneapolis, Quarterly Survey of Agricultural Credit Conditions  
  Operating Machinery Real Estate
  Fixed Var. Fixed Var. Fixed Var.
Q2-18 July 6.0 5.8 6.0 5.7 5.7 5.5
Q3-18 October 6.1 5.9 6.1 5.8 5.9 5.6
Q4-18 January 6.2 6.0 6.1 5.9 5.9 5.7
Q1-19 April 6.4 6.2 6.2 6.0 6.0 5.8
Q2-19 July 6.3 6.1 6.1 6.0 5.9 5.7
Q3-19 October 6.1 5.9 5.9 5.8 5.7 5.5
Q4-19 January 5.8 5.7 5.7 5.6 5.5 5.3
Q1-20 April 5.3 5.1 5.2 5.1 4.9 4.8
Joe Mahon
Director, Regional Outreach

Joe Mahon is a Minneapolis Fed regional outreach director. Joe’s primary responsibilities involve tracking several sectors of the Ninth District economy, including agriculture, manufacturing, energy, and mining.