Focus on ag: Reflecting on the top five agriculture issues for 2020

Kent Thiesse
Farm Management Analyst and Vice President, MinnStar Bank

At the end of every year, various publications and websites list their “Top 10” or “Top 5” list for that year. In this issue of “Focus on Ag”, I am highlighting my “Top 5 Ag Issues” for 2020, based on issues that were discussed in columns throughout the year.

Following are my “Top 5 Ag Issues” for 2020:

1. Impacts of COVID-19 on the ag industry

The biggest news story of 2020 will likely be COVID-19 and its resulting health and economic effects.

The agriculture industry, rural communities, and farm families were not immune from the impacts of COVID-19. Schools, churches and businesses in rural communities were closed for several weeks, and some are still closed. As we end 2020, many businesses in rural communities are feeling the economic hardship that has been caused by the widespread coronavirus outbreak. Rural communities in some areas have also had issues with limited hospital beds and available medical services.

Livestock and dairy producers were at the epicenter of the financial hardship and mental stress that resulted from the coronavirus outbreak. Daily updates on closures of meat processing plants due to COVID-19 outbreaks became a regular occurrence in late April and early May.

For several weeks the U.S., the meat processing industry was only operating at 50-60% capacity. This resulted in the necessity to euthanize hundreds of thousands of market hogs. The economic recovery from this devastating setback, which could take years, is likely to be slow and challenging.

The ethanol industry was also severely challenged by the COVID outbreak. Due to travel restrictions and significantly lower gasoline consumption in the U.S., some ethanol plants reduced or suspended production for a period of time in 2020. Profit margins and demand for ethanol have been slow to recover. About 5.4 billion bushels of corn per year is utilized for ethanol production, which represents 35-40% of the typical annual U.S. corn production. December corn futures on the Chicago Board of Trade (CBOT), which are the underlying contract for 2020 harvest prices for corn, declined from near $4.00 per bushel in early February to near $3.20 per bushel by July, before recovering late in the year.

2. Unexpected increase in grain prices late in 2020

Grain markets had some wild swings during the year. Local cash corn prices in some areas were favorable in January and early February, due to very tight local basis levels, following the poor 2019 corn crop in portions of the region.

Once the COVID-19 outbreak became widespread in the U.S. during March, local corn prices dropped dramatically due to disruptions in both the livestock and ethanol industries. Late in the year, both corn and soybean prices unexpectedly rebounded to some of the highest levels in the past few years, largely driven by enhanced export sales to China, as well as late-season reductions in U.S. crop yields.

Local cash soybean prices in southern Minnesota rose from below $8.50 per bushel in mid-August to current levels near $11 per bushel. Once local soybean prices reached $9.00 per bushel, which was the highest level in a couple of years, farmers began selling their soybeans at harvest or right after harvest.

A majority of the soybeans in many areas were sold at a local price of $9-$10 per bushel, rather than the current $10.50-$11 per bushel range. The local cash price for corn in many areas has been in the $3.75 to $4 per bushel range in recent weeks; however, similar to soybeans, some farmers started pricing their 2020 corn crop near $3.50 per bushel as opposed to current price levels.

3. Variable weather results in a wide range of crop yields

“Mother nature” was again a big agriculture story in 2020. The Aug. 10 derecho storm with winds over 100 mph severely damaged crops in a widespread area across the middle of Iowa, as well as portions of Nebraska, Illinois and Indiana. In the hardest hit areas, crops were a total loss, while other portions of the region had significant yield reductions.

In addition, the storm caused considerable structural damage to farm grain handling systems, livestock buildings, and commercial ag facilities. Portions of Iowa, Nebraska, South Dakota and southwest Minnesota got extremely dry late in the 2020 growing season, which also reduced the excellent yield potential that crops had earlier in the growing season. Parts of south central Minnesota were impacted by excess rainfall during two or three high rainfall events in late June and July, which caused considerable drown-out damage in some fields.

On the other hand, growers in some areas of southern and western Minnesota, as well as in northeast Iowa, the eastern Dakota’s, and portions of Wisconsin, had 2020 crop yields that were among the best ever. The U.S. Department of Agriculture (USDA) is projecting Minnesota to have a record statewide average corn yield of 202 bushels per acre in 2020, which exceeds the previous record yield of 194 bushels per acre in 2017. By comparison, the 2020 corn yield estimate for Iowa is 184 bushels per acre, which is the same as Wisconsin. Illinois is projected at 195 bushels per acre, Indiana at 189 bushels per acre, Nebraska at 185 bushels per acre, and South Dakota at 165 bushels per acre.

4. Sharp increase in 2020 net farm income

Based on the data in the latest “2020 Farm Income Forecast” that was released by the USDA Economic Research Service (ERS) in early December, U.S. net farm income is expected to increase by $36 billion, or 43% above 2019 levels. The 2020 net farm income is now estimated at $119 billion, which would be the highest inflation adjusted net farm income since 2013 and is 32% above the 20-year (2000-2019) average net farm income of $90.6 billion.

However, the 2020 net farm income is greatly inflated by the highest level of government farm program payments in decades. Just over $46 billion of the estimated $119 billion in projected 2020 net farm income was due the farm program payments from the federal government, with ad hoc or one-time program payments accounting for over 75% of that total. Government farm program payments accounted for 39% of the net farm income in 2020, which was an increase from 26% in 2019, and compared to 9-16% in most other years from 2011 to 2018.

5. Ag policy leadership changes following the 2020 election

The highly contentious 2020 election is now history, and we will now move forward with a new administration and several new members of Congress, along with changes in leadership to the U.S. House and Senate Agriculture Committees. We will also see who is confirmed as Secretary of Agriculture and to head the Environmental Protection Agency (EPA). These appointments, along with subsequent appointments within the agencies and at the state level, can have a big impact on how various agriculture and environmental policies are implemented and administered. The leadership of key congressional committees, such as the House and Senate Agriculture Committees, will also change after Jan. 1 and may influence legislation that could impact farmers. There are many key issues that potentially could affect the agriculture industry, which will likely be addressed and possibly resolved by Congress and the White House in the next few years.

Kent Thiesse