FCA board receives quarterly report on conditions in agriculture and the Farm Credit System

At its monthly meeting, the Farm Credit Administration board received a quarterly report on economic issues affecting agriculture, together with an update on the financial condition and performance of the Farm Credit System  as of March 31.

The U.S. economy appears to have turned the corner following its steep and rapid contraction following the COVID-19 outbreak. April’s high unemployment rate edged down slightly in May, and weekly initial unemployment claims continue to decline. Local economies have started to reopen, but the eventual economic rebound depends on the trajectory of the ongoing health crisis and consumer behavior.

For agricultural producers, market volatility has been high for both crop and livestock sectors. Crop returns continue to be under pressure this year because of plentiful supplies and expected strong production. The livestock sector has seen the most disruption during the crisis, but low corn prices have helped reduce feed expenses. The loss of restaurant and food service demand and livestock processing capacity disruptions lowered prices across the livestock marketing chain.

Commodity prices are rebounding somewhat as the food system adjusts and regains its footing. However, challenges remain with processing backlogs, continued cases of COVID-19 among farm and food processing workers, and uncertain demand prospects.

In the wake of the global COVID-19 outbreak, export expectations have weakened, particularly for bulk commodities such as soybeans, cotton, corn, and wheat. While exports of meat, particularly pork, have held up well so far this year, demand questions remain because of persistent trade tensions despite the agreement signed with China earlier this year.

Established farm support programs provide a safety net that works to varying degrees for different commodities. To supplement these programs, Congress and the USDA have provided additional support to the ag sector through the Coronavirus Food Assistance Program. This program will double the amount of expected government payments to the farm sector in 2020. Direct payments of $16 billion have been designated to compensate for losses due to price declines and spoiled products. Payments will be based on inventory and sales in certain periods of early 2020, although not all producers will benefit.

As of March 31, the System was safe and financially sound. Portfolio loan quality remained largely unchanged since current events did not materially affect first quarter results. Strong quarterly earnings continued to support additional capital growth. The System also took actions to boost liquidity levels because of the volatility and uncertainty in the debt capital markets.