Thread by @ScottIrwinUI

1. Weekend Reading: Just published in the AEPP (free access) with farmdoc colleagues "Coronavirus Impacts on Midwestern Row‐Crop Agriculture" onlinelibrary.wiley.com/doi/full/10.10…

2. Our main purpose in writing this paper was to show that the coronavirus pandemic simply added to the downward financial pressures on Corn Belt ag that have been building since 2014, when the long price boom ended.

3. This downward trend in returns is nicely summarized in this chart. The big soybean return in 2018 was MFP1. So any truly good news for crop farmers after 2013 was from gov't payments. Don't be put off by the x axis scale. Need to get that fixed.

4. The size of federal aid needed to keep Midwest row crop ag afloat has become massive. Over $30 billion this year.

5. Despite the massive federal aid there has been a growing cash flow crunch for Midwest crop farmers since 2014. This has caused farmers to run down their current assets and refinance debts.

6. Lots of people want to jump from the cash flow crunch to a 1980s style financial crisis. And it seems logical to make this leap given how low grain prices have been (until the last couple of months). Wasn't there a cash flow crunch in the early 80s?

7. That logic misses the other key driver of the 1980s farm financial crisis---interest rates. If there is one chart everyone interested in US farm finance should really pay attention to, it is this one. Treasury rates in 80s were 8-14%. Now just 1%!!!

8. The implication of the incredible decline in interest rates is that even with the cash flow crunch there is no evidence that farmland is over-priced. Cash rent ratio and interest rates are roughly in line. Compare that to the 80s. A clear bubble in hindsight.

9. If anything, farmland prices in the Midwest have been undervalued relative to income at the level of interest rates since 2014. This of course is only a rough valuation metric, but I think you get the picture.

10. Until interest rate increase a lot, don't expect much softness in Midwest farmland prices. And drum roll please...this means a 1980s style financial solvency crisis in Midwest ag won't happen because farm asset values are so well supported at current interest rates.

11. Classic example of cash flow poor-asset rich. And finally, the cash flow outlook has improved a lot since we finished this article in July and new crop 2020 corn futures were sitting at $3.20 and soybeans at $8.50. Now closer to $4 and $10.75. Happy days for awhile.

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