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Flush times for farmers, buoyed by strong markets and pandemic aid

Farmers in the Midwest and Plains are reaping a cash bonanza that has dramatically improved their finances a year after the pandemic pummeled commodity markets and prompted a record $46 billion in federal payments to agriculture, said three regional Federal Reserve banks on Thursday. The banks in Kansas City, Chicago, and Minneapolis said farm income strengthened in the early months of this year, a continuation of the improvement seen at the end of 2020.

“After a sharp rebound at the end of 2020, conditions in the broad agricultural economy continued to improve alongside increases in crop prices,” said the Kansas City Federal Reserve, which covers the central Plains. “Stronger profit potential for farm borrowers supported a second quarter of significant increases in farm income, loan repayment rates, and farmland values.”

Based on surveys of ag bankers, the regional Feds said farmland values were 7% to 8% higher at the start of this year’s planting season than they were at the same point in 2020.

The Minneapolis Fed said nearly three-quarters of lenders in its district in the northern Plains and upper Midwest predicted farm income would increase this spring. “Good yields, higher prices, and government throwing money at them has farmers in much better financial shape,” said a Wisconsin banker.

“The farm economy ended very strong in 2020, and 2021 looks to be even better,” an Illinois banker told the Chicago Fed, in the heart of the Farm Belt. An Indiana banker said, “Government payments, grain price increases, and above-average yields have grain farmers in their most liquid position in the last 10 years.”

In February, the USDA forecast farm income at a strong $111.4 billion this year, 20% above the 10-year average, thanks to a recovery in crop and livestock revenue and larger than usual federal payments. The USDA is scheduled to update its estimate on Sept. 2.

Corn prices were 33% higher, soybeans 56% higher, and hogs 38% higher in March than a year earlier, when the coronavirus was declared a public health emergency and much of the economy shut down, said the Chicago Fed. “In addition, the USDA’s Coronavirus Food Assistance Program pumped $24.1 billion into the farm economy over the past year. … Combined, these factors (along with lower real interest rates) boosted farm incomes, helping drive up both farmland values and cash rents.”

Adverse weather is a threat to good times for farmers and ranchers. Persistent drought is blanketing the western half of the country, and a band of moderate drought is stretching across northern Iowa, southern Wisconsin, and the northeastern corner of Illinois, and covers most of the Lower Peninsula of Michigan.

While most producers in the central Plains are in better financial shape than a year ago, “the pace of improvement was notably slower for livestock producers and for producers in areas affected by severe drought,” said the Kansas City Fed. “The scope and severity of the drought was a major concern in Western states. However, government programs continued to provide support amid these challenges, and the prolonged buildup of financial pressure in recent years appears to have eased considerably.”

A banker in western North Dakota told the Minneapolis Fed, “Severe drought conditions are the biggest issue in our area.”

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