Purdue Agricultural Economist: A ‘Tough Couple of Years’ Ahead for Agriculture
September 28, 2020 According to Dr. Jason Henderson, Senior Associate Dean of Agriculture and Director of Extension at Purdue University, 2020 will long be remembered by agricultural industry watchers, for all the wrong reasons. “This year looked to be very promising, but turned out to be really disappointing,” said Henderson, speaking at the 2020 Mid America CropLife Association virtual annual meeting in September. “In fact, a colleague of mine said 2020 is a year that makes every other year look amazing.”
Of course, going into 2020, the agricultural industry had plenty of reasons for optimism, he said. The long-running U.S.-China trade dispute seemed to be heading for some kind of resolution and the overall economy of the country looked ready to rebound from a slower 2019. Then, the coronavirus pandemic hit, and everything changed.
“This year was a year of opportunity lost,” said Henderson. “In the U.S., we went from record low unemployment at the start of the year to COVID-19 hitting and 22 million people filing for unemployment insurance by May. It will probably take us a couple of years to get back to seeing better employment numbers.”
Unfortunately, this disruption in the general economy is already negatively affecting agricultural fortunes. For example, he said, restaurants – big consumers of agricultural products in normal times – saw their sales fall from $65 billion in 2019 to $30 billion in 2020 during the spring. And even with an uptick coming in July, Henderson predicted agriculture product sales to restaurants will likely remain lower going into 2021, “until social distancing concerns go away.”
“This means that demand for agriculture will be sluggish for the rest of 2020, maybe going up some as a dead cat bounce,” he said. “But it’s important to remember that after they bounce, a dead cat is still a dead cat!”
Going into 2020, said Henderson, farmers were hoping that the trade concerns between the U.S. and China would be on their way to being resolved. In fact, according to its own survey work, a significant percentage of farmers believed this would be the case. “But not now,” he added.
Over the next few years, Henderson predicted that agriculture would be stuck in a kind of “trade policy trap” between opposing administrations in both countries. In reality, U.S. farmers need access to Chinese food markets while China needs access to U.S. manufacturers, “but if this happens or not is anyone’s guess,” he said.
In the meantime, the U.S. government has shown it will step in and provide U.S. farmers with federal aid to make up shortfalls in crop export income, to the tune of $30 billion so far in 2020. This has helped keep net farm income above the $80 billion mark for the year.
“But that’s no comfort to me, because what happens going into 2021?” asked Henderson. “This is not the financial picture agriculture had for itself going into this year.”
Perhaps most troubling, access to working capital for farmers has fallen significantly over the past year. “Before COVID-19, farmers had more than $200 billion in working capital at their disposal,” said Henderson. “Now, it’s around $50 billion.” Indeed, he added, many farmers used government Payback Protection Program loans during the second quarter of 2020 to manage their financial needs.
Still, it’s a positive for farmer finances that interest rates have remained low. “This is a saving grace,” said Henderson.
For the future, Henderson predicted that agricultural finances will remain under pressure for many more years to come. “It’s going to be a tough couple of years for U.S. agriculture,” he concluded. “Overall, demand will a have very sluggish rebound. And it will probably be 2023 before the industry is back to the pre-COVID-19 economy.”
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