The total impact of the COVID-19 crisis on American agriculture is far from a final assessment. David Kohl, President of AgriVisions, LLC and Professor Emeritus of Agricultural and Applied Economics at Virginia Tech University, recently shared his insights on the situation during several of the Professional Dairy Producers of Wisconsin’s “Dairy Signal” webcasts.
Kohl sees the “black swan” event of COVID-19 in three phases, both for agriculture and society as a whole. “At first, she was a ‘dirty bird,’ causing massive disruption and volatility in nearly every segment of American agriculture,” he said. “When the economy starts to open up, I think she will be an ‘angry bird,’ creating widespread social, political and economic angst. That phase will last at least through the election in the fall.”
Eventually, Kohl envisions the third stage as the “phoenix” phase. In Greek mythology, the phoenix was a bird that emerged from the ruins of destruction as a stronger, smarter and more powerful creature than before.
Still, Kohl cautioned that the path between now and the phoenix stage could be a rough one. He said he receives calls daily from farmers seeking counsel on how to best navigate the crisis. His current advice:
- Get your financials in order. Asses your first-quarter results for 2020, and carefully document all of your losses.
- Conduct a 3-to-4-year trend analysis. Evaluate how COVID-19 has impacted the trend of your farm’s profitability.
- Assess equity depletion. Divide losses into equity to determine the rate at which you currently are burning equity.
- Reach out to your lender. One option that many agricultural bankers are utilizing is switching to interest-only, principal-deferred payment plans in the short term.
- See your accountant. Before you proceed with any partial or full liquidation, find out the potential tax implications of doing so.
- Seek financial and/or mental health counseling resources if needed. There is no shame in seeking counsel, whether formally or informally. Sometimes just a conversation with a trusted, older mentor can help you keep things in perspective.
Kohl believes that rather than a “V-shaped” rebound, the U.S. economy will follow a “Nike-swoosh-shaped” recovery, largely because consumers will not instantly get back on their feet. “But we don’t know if it will be a ‘size 6’ or ‘size 14’ shoe! We are looking at 30 to 40 million unemployed people, plus a large percentage of others whose incomes will be reduced,” he shared. “They will be pulling in their horns and going back to the basics for quite a while.”
A huge element of that scenario is the restaurant and food service trade. The dramatic impact on the dairy business created by restaurant and institutional closures will not heal overnight. About 60% of U.S. butter and 50% of cheese is consumed away from home, and some economists predict 10 to 15% of U.S. restaurants will not re-open when the rest of the economy does.
Other elements of great concern to Kohl going forward are:
- The possibility that other countries will take out our energy complex, undermining America’s energy independence.
- Further consolidation in the economy, with big companies gaining even more control.
- Knee-jerk reactions in agriculture resulting in falling land prices and the return of an “80’s-like” farm crisis.
For now, Kohl advises managing the things you can control, and managing around those you can’t. “Re-evaluate your personal and business goals, and think about how you will reinvent yourself and create your own ‘phoenix,’” he suggested. “Also, avoid listening to the media as much as possible.”
Kohl said this also is an important time to take stock in business, family and personal, as well as mental, physical and spiritual, blessings. “Never equate your self-worth to your net worth,” he advised.