What’s Next in Grain & Feed Industries?
What will be the next chapter in the story of the grain and feed industries? As we climb out of the COVID-19 pandemic, we all ask ourselves: which areas of our businesses will return to “normal”, and which areas will not? Looking back at what the industries have experience this past year, a return to normal may not be exactly what the grain and feed industries need.
One of the most widely-used sources of support for businesses in the past year has been the Paycheck Protection Program (PPP). Compeer Financial has processed over 10,000 loans during the pandemic for a total of $300MM between the first and second rounds of PPP. These funds were used for payroll, interest expense, rent and utilities. With this financial support, farmers and feed and grain businesses were able to focus on the overall health of their business in an uncertain time.
As Compeer team members have supported clients through the PPP, our main piece of advice is to read through everything carefully - especially sections on record retention, loan forgiveness and borrower responsibilities. This program was rolled out fast, providing easy access across the industry, so it is possible the SBA will spend more time auditing recipients for proper use.
The COVID-19 pandemic has undoubtedly impacted grain elevators and feed mills as they were challenged to stay open during the peak of the pandemic. Some had no choice but to close temporarily. The way employees interact with customers at the mill and elevator changed. Perhaps the pandemic was a rude awakening for businesses slow to embrace technology. The past year was an unplanned, costly and uncomfortable experiment that tested our people and processes. Don’t be too quick to put it behind us. Instead, learn from this experiment, re-prioritize capital plans and improve business strategies.
The grain industry has recently seen positive news, giving more hope for the future. Export markets have generated better demand, giving grain elevators a much-needed volume boost. Domestic acres appear to be increasing again, albeit hinging on spring planting weather.
Temporary changes in consumer food purchasing patterns and plant shut-downs disrupted the dairy and animal protein supply chains in 2020. Thankfully, animal and milk prices have increased in 2021, supported by stronger domestic and export demand. Feed prices have also risen, but dairy and hog margins are still in a better place. Mills could benefit from higher volume and better demand if animal herds expand in a positive margin environment.
What Recovery Looks Like
Many feed and grain companies put some spending temporarily on hold during the pandemic. With a high level of uncertainty, many held their cash to brace for any unforeseen negative impacts. Some businesses had the opportunity to keep full employment of their staff, aided by government support. Could strong liquidity, volume and margins stimulate a boost in capital expenditures?
Businesses could be coming out of the COVID-19 pandemic with a financial position that allows for significant capital expenditure spending. Liquidity at the farm gate has brought accounts receivable more current for feed mills. Grain elevators are looking forward to putting their assets to use in a bigger way. These factors could pull construction contractors and materials into a high-demand and low-availability situation.
The residential housing market has already seen inflation on contract labor and building materials since mid-2020. For grain elevators and feed mills looking to expand storage capacity or replace a worn out leg, contractors could have a busy season ahead of them in the last half of 2021 and beyond. If construction projects back up far enough, perhaps some items on the wish list will have to wait a few extra years. If this happens, it may be more prudent to prioritize technology investments over items on the construction list.
The Next Chapter
Project lists for grain elevators or feed mills have likely grown during the pandemic. Prioritization will be key. Have the important conversations now to build a strong business strategy plan with realistic return on project investments.
The COVID-19 pandemic has certainly become a chapter for history books. The next chapter in the feed and grain industries likely will not be the “normal” that we’re used to. Technology and employee health will have a new focus, and capital deployment could be strong for several years - even after other areas of the business return to “normal”.