Banks and ag production are expected to stay strong amid the coronavirus storm, according to a Federal Reserve economist.
Cortney Cowley, an economist with the Federal Reserve Bank of Kansas City, said while these are relatively unprecedented and uncertain times in the financial arena, there should be a light at the end of the tunnel.
“That would be our hope,” Cowley said. “I know you can’t make business plans on hope, but we are really good at producing agricultural commodities in our country. We are already expecting large production again.”
In a webinar series from farmdoc daily, Gary Schnitkey, a professor of agricultural and consumer economics at the University of Illinois, said the financial sector is dealing with strain, but many agricultural businesses and lenders are staying open.
“They have funds and can make loans,” he said. “They’ll be doing that through non-face-to-face meetings in many cases. We’ve seen many lenders close their lobbies, but the money for existing loans is there.”
Schnitkey said the bright side of the economic uncertainty in the midst of coronavirus is lower interest rates, and they are expected to stay lower for crop farmers who have yet to renew loans. Livestock and dairy farmers should stay in contact with lenders to be on top of any changes in the markets, he said.
Schnitkey also reassured farmers there isn’t a need to make a run on the bank to get cash out.
“Our financial institutions are going to be just fine,” he said.
With interest rates running lower than in recent years, some producers might be looking into refinancing their loans. T.J. Roemmich, Conterra Ag Capital senior vice president, said that decision depends on timing. If someone has refinanced debts in the past six to eight months, odds are good that person already has a competitive rate, he said.
“If it’s been longer than that, there could be significant opportunity to benefit from the lower rate environment,” Roemmich said.
While interest rates have dropped and uncertainty is high, Cowley noted COVID-19 is not the only factor affecting the agriculture markets at the moment. Supply and demand issues have plagued the markets, trade wars affected the landscape and the current low commodity prices are also a major factor.
Those prior problems already had producers expecting reductions in working capital even before the pandemic, which Cowley said was “very concerning.”
She said the bright spot during this pandemic is that commodity prices have not dropped as much as other groups, such as oil, gas and the overall stock market. She said while there is a bit more stress on farmers, she is optimistic about lending options.
“Overall, agricultural banks really increased their capital,” she said. “They are well capitalized. They’ve been strong, even throughout the downturn that we’ve seen in the agricultural economy over six years.
“I think that the bankers I know are being flexible to get through this because it is a significant impact to all sectors, but it may be short term. So they are saying ‘What can we do to get through it?’”