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Farm Credit lenders and borrowers: Good for now

But COVID-19 will add stress to borrowers.

By the usual metrics for farm lending, things look good, according to a press briefing by Farm Credit CEOs Tuesday. Their borrowers have operating loans for the 2020 growing season. The lenders themselves remain well capitalized, and borrower loan delinquencies are low. This spring, borrowers have received patronage dividends from these cooperative institutions.

In the case of Yosemite Farm Credit in California’s Central Valley, its borrowers got checks for $24.2 million in dividends, effectively lowering their 2019 interest cost by three fourths of a percentage point, says Tracy Sparks, the lender’s CEO.

Still, the global pandemic is hitting home, crashing grain prices that have trended downward for the past five years and disrupting processing and supply chains with devastating effects for dairies, hog farms, and cattle feedlots.

When Sparks was asked how many of her dairy farm borrowers are leaving the business, she said Yosemite Farm Credit doesn’t track those numbers.

“What we know is there are many conversations about that,” she said. Younger members of dairy farm families see their parents’ struggles and contemplate cashing out. Other dairies are switching to almond  production.

Recent closures of pork and beef processing plants are hurting some members of Farm Credit Mid-America, which serves farmers in Kentucky, Tennessee, Ohio, and Indiana.

“While we may focus on small family farms, they’re dependent on integrators and processors to be able to have somewhere to take their product,” says Bill Johnson, CEO of Farm Credit Mid-America.

“One of the challenges that we’re seeing right now is either delays in being able to take livestock to market or changes in how the demand for that livestock through the processing cycle will be impacted by some of the disruptions that are occurring because of COVID-19 and some of the plants closing down,”  he said.  “There just aren’t alternative sources to take product to.”

Todd Van Hoose, president of the Farm Credit Council, adds that not only is COVID-19 closing processing plants, but also the shift from restaurant food service supply chains to retail supply chains “is really straining the distribution system.”

“We’re seeing a lot of livestock backing up on farms. This is resulting in the unusual paradox where you have almost no market for some animals right now and very low prices as a result at the producer level. But if you walked into Safeway this week, you paid a premium for any kind of meat product you bought,” Van Hoose says.

“These plant closures are having a huge impact on the livestock industry,” he adds. “I’m getting multiple reports of producers getting to the point where they’re going to have to start euthanizing animals if they can’t move them off the farm.”

Social distancing in packing plants is almost impossible, Van Hoose says. He acknowledged the importance of trying to maintain public health “but the fact is this is devastating to the beef and cattle markets especially.”

Sparks said USDA’s program to buy meats and donate that and other foods to charity “is a good start” to offering a use for foods that aren’t being delivered to consumers by supply chains. That $3 billion program is part of the $19 billion Coronavirus Food Assistance Program announced by Agriculture Secretary Sonny Perdue last Friday.

Other federal programs may not help as much.

The next round of the Small Business Administration’s Paycheck Protection Program will still be too small to meet demand, says Van Hoose, who is based in Washington, D.C.

“I don’t see it lasting four days at this point,” he says.

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