By early spring, it was turning into another rough year for the agriculture industry.
But agriculture persevered, and through a combination of rebounding prices and federal relief programs, the industry has made the best of what could have been a disastrous year due to the global coronavirus pandemic, according to Paul Mitchell, director of the Renk Agribusiness Institute and professor in the UW-Madison Department of Agricultural and Applied Economics.
“I felt proud to be part of an industry that was considered essential,” Mitchell said Nov. 12 during the “Prioritizing Financial and Marketing Decisions” webinar, the third in UW-Extension’s “Farm Management Update for Ag Professionals” fall webinar series. “And we’ve done a great job. We planted a crop in the middle of this pandemic. I think ag has really stepped up, and we supplied food to the world.
“We had a good production year, but we had a lot of chaos in terms of stuff off the farm.”
Coming into the year, projections were showing 2020 could be a rebound year for agriculture with improving commodity markets following five years of low prices. However, with COVID-19 making its way to the U.S. and the coronavirus pandemic grinding much of the country to a halt, “prices fell apart by the middle, end of March, early April,” Mitchell said.
Soon the federal government realized help was needed in the agriculture industry, which, prior to the onset of the pandemic, was looking like it was just beginning to emerge from several trade wars that were also keeping commodity prices down.
The resulting programs have led to billions of dollars in direct payments to farmers throughout the country.
“A big, sizable chunk of income this year is going to come from these various sorts of government programs, some for the pandemic and some for the farm bill, and some from the trade wars,” Mitchell said.
The agriculture industry is benefiting in 2020 from programs like the Agriculture Risk Coverage and Price Loss Coverage and Dairy Margin Coverage programs included included in the 2018 Farm Bill, as well as the Market Facilitation Program due to the trade wars, and coronavirus relief programs like the Paycheck Protection Program and two rounds of the Coronavirus Food Assistance Program on the federal level and the Wisconsin Farm Support Program.
“The real outcome, I think, is that farm income is likely up in the state this year,” Mitchell said. “That doesn’t mean the stress is gone. There are plenty of people who are still under intense financial stress. And it doesn’t mean everyone, not everyone’s income is up.”
Wisconsin farmers have also benefited from a growing season that has turned out more favorably than it has in several neighboring states.
Farmers had a lot of prevented plant acres in 2019, but this year was an easy plant year for most farmers, Mitchell said. Most of Wisconsin has avoided the drought conditions that have impacted many other parts of the Midwest and extreme weather events like the derecho that hit Iowa this summer, flattening more than 500,000 acres of corn and soybeans, he added.
The good growing conditions, federal support and prices that have rebounded nicely from their collapses early in the pandemic have done a lot to help farmers get through 2020.
“We’ve got crops and livestock prices that have rebounded. Dairy is looking better. We got great production year for Wisconsin, and then we’ve also got these federal payments, so I think there’s a lot of farmers are going to be looking at high income year after several years of tight money,” Mitchell said. “This is the first year in a while we can have a good income year, but without federal payments, we’d be in another tight year.”
Mitchell recommends farmers who do well financially this year be thoughtful when it comes to managing any extra money. He cautions against purchases for the purpose of reducing taxes without taking into account the added costs for things like depreciation and maintenance associated with large equipment purchases.
“The key is to really emphasize it’s not about reducing taxes, it’s about improving your productivity and or reducing your cost of production with productive assets,” he said. “If you’ve got this kind of capital lying around, do something productive with it. the idea there is you want to generate rates of return that exceed the interest rate or your opportunity cost. You don’t want to invest in something that’s not going to generate returns.”
The final webinar in the Farm Management Update series, “2020 Tough Talk: Difficult Conversations, COVID-19, and Taxes,” will be Dec. 10 at 1 p.m. To register, go to https://go.wisc.edu/2rcpis. Contact UW-Extension Agriculture Educators Steph Plaster at email@example.com or Amber O’Brien at firstname.lastname@example.org with questions.