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What does the $19bn bailout for US farmers tell us?

With a further $14bn injection into the USDA expected to land in July, the intervention suggests trouble runs deep – the reality is a little more complicated.

Following the unprecedented $2 trillion US aid package signed into law on 27 March, farmers were given a better idea of the type of support they could expect from the federal government exactly three weeks later.

President Trump unveiled a $19 billion program on 17 April to be delivered by the USDA, comprised of $16 billion in direct payments to stricken farmers and $3 billion for government purchases of meat, dairy and fresh fruit and vegetables.

While the size of the aid package is substantial and will be supplemented in July by an additional $14 billion through a replenishment of the USDA’s Commodity Credit Corporation facility, there are signs the mixed fortunes narrative that has played out across the asset class globally is being reflected in the US.

It’s important to make clear that many US farmers are in need of aid and, as Agri Investor has learned, even those faring relatively well have benefited from federal support.

As was experienced at the start of the covid-19 pandemic by seafood producers, North American meat and fresh produce suppliers dependent on food service establishments have not been spared their share of the pain. And, in the case of dairy producers, school closures have compounded the misery.

Dairy Farmers of America, for example, which is the largest dairy cooperative in the US, has been instructing farmers to dump milk since the start of April. DFA estimates farmers are dumping around 8 percent of their milk output.

Hog farmers, meanwhile, could lose as much as $5 billion in revenue this year, according to estimates by the National Pork Producers Council. NPPC president Howard Roth said in a statement he welcomed the $3 billion direct purchasing program that will spend around $100 million per month in each product category (expected to start sometime in May), but added that he feared “the lifeline will fall short of what is truly needed” by hog farmers.

There are those sitting on the other side of the fence, however, such as organic fresh produce and grains investor Farmland LP, which could emerge from the pandemic largely unscathed.

Farmland LP has operations in Oregon, California and Washington. The firm has benefited from a market wide increase in vegetable sales of 41 percent in comparison to this time last year, according to data from IRI, while fruit sale increases of 27 percent have also helped the company, confirmed managing partner Craig Wichner.

The company has also experienced minimal disruption with regards to its labor pool and, thanks to its diversified client base and range of fresh and frozen products, Wichner said the overall impact on income this year is expected to be “neutral to slightly down.”

Even here, however, Farmland LP has been aided by the USDA’s Commodity Credit Corporation facility, which two weeks ago purchased all of its holdover frozen blueberries in storage. This USDA round of purchasing is “expected to lift this crop’s price by 20 cents per lb,” said Wichner. The firm also expects to draw from the $19 billion aid program, as its cover crops seed business has been negatively impacted by diminished demand due to the pandemic.

Further afield, in another segment of the ag asset class that has attracted substantial private equity investment in the US, are nut orchards. Pistachio and almond investor Gold Leaf Farming has suffered “very little impact from the pandemic so far,” said partner Jack McCarthy.

The firm has noted a price drop for almonds, which he said predates the coronavirus outbreak and is due to a bumper crop last year and another large crop expected again this year. Despite this, “we sent [investors] double digit semi-annual dividends as planned in April,” said McCarthy.

A sense of optimism clearly still exists among stakeholders able to get their goods to market and thus in a position to make the most of ag’s mostly uncorrelated status through this crisis. But as Farmland LP’s experience shows, even the resilient are going to need a hand through this pandemic.

Write to the author at binyamin.a@peimedia.com.