Cutoff of H2A Workforce Hobbles Kansas Farms Amid COVID-19 Crisis

KHARKIV, UKRAINE - JULY 12, 2011: Harvesting wheat field in Kharkiv Oblast in the Ukraine

Commodity Price Drop, Lack of Information Compound the Challenges

By Bill Glazner

With food production considered an essential activity, farm operations are not required to shut down in response to the ongoing COVID-19 (coronavirus) pandemic. However, the closure of programs that provided temporary workers as well as uncertainty about whether support industries are considered “essential” has farmers facing uncertainty as the nation continues to shut down.

Moreover, the COVID-19 impact on agriculture already has resulted in a significant drop in commodity prices as restaurant and school meal demand has all but disappeared.

H2A Worker Program Halted

The greatest impact at this point is being felt by crop farmers whose seasonal workers, who usually arrive from South Africa in the spring under the federal H2A program and depart in the fall, were barred from entering the U.S. as of mid-March. While farmworkers from certain countries, including Mexico, are still being allowed to enter at reduced numbers, H2A visas for South African workers are suspended until May 31, 2020.

Some Kansas farmers already had brought in some of their H2A workers, but others were caught by the program cutoff with less than half of the workers they normally need.

For example, the owner of a custom cutting business usually hires about 40 H2A worker but was able to bring in only half his workforce this year before the South African entries were barred. He runs multiple combines all the way from the Mexico border into Canada, cutting wheat in the summer and corn, milo and beans in the fall. He will have to determine whether to run only half a crew this year or try to hire domestic workers who have lost jobs during the COVID-19 outbreak. That can present problems, though, because the H2A workers come in with farming and machinery skills; the domestic workers who have been laid off, for the most part, do not have those skills and would need training.

For livestock producers, whose immigrant employees from Mexico and Central America live in the U.S. year-round, the challenges are different. Because of business closures, workers may be pulled over and questioned about why they are on the roads amid a shelter-in-place order. Those who do not speak English have difficulty explaining that they work in an essential industry, so our firm has provided standard letters to their employers that they carry with them while traveling to and from work.

Commodity Price Drop

On top of the workforce issues, commodity prices have dropped significantly. The prices of corn, cotton and cattle, for example, all are at or near 52-week lows. Wheat and soybeans have rebounded a little with the promise of federal aid being injected into the market. See our analysis of the CARES Act.

For farmers who have been operating on razor-thin margins since 2014 – the last good year for farm commodities – these price drops present serious challenges.

Who’s ‘Essential?’

Concern has risen among some in the farm industry as to which businesses, exactly, are considered “essential” as shut-down orders expand across the country. Farms are considered essential because of their role in food production. But some ancillary businesses that serve farms – and without which farms could not function – are uncertain about their status. Also uncertain is who makes the determination about what is essential and what isn’t.

Going Forward

We recommend that farm owners and the farm services industries take a conservative approach as the COVID-19 pandemic continues unfolding in the U.S.

  • Re-evaluate your cash flow forecasts. If you can get by without buying new equipment, make do with what you’ve got. Spend money only on essential equipment and supplies.
  • If you have storage facilities, make sure you have the materials you need to operate on hand in case they become scarce as more businesses are shut down. This would include fuel, fertilizer and seed. This is a good time to stock up on fuel since the cost has dropped significantly. Not good news for the oil and gas industry, but helpful for farmers. Since fertilizer prices tend to follow oil and gas prices, watch for those prices to fall and stock up when they do. Don’t wait too long, though, as supplies may become scarce. These strategies show the advantage of having a healthy cash flow. If you’re highly leveraged, you may not have the capacity to do this kind of planning.

Government Relief

Critical resources for farmers and other business owners are contained in the coronavirus response bills signed into law in the past 10 days, as well as existing federal programs:

  • The Coronavirus Aid, Relief and Economic Security (CARES) Act signed into law March 27, 2020 includes further aid specifically for the farm industry in the form of a $14 billion increase in USDA’s borrowing authority under the Commodity Credit Corporation and $9.5 billion to assist specialty crop producers, direct retail farmers and livestock operators.
  • The Families First Coronavirus Response Act, signed into law on March 18, requires employers to provide up to 80 hours of paid sick leave to workers who contract COVID-19, and provides immediate payroll tax credits to help offset the cost. The law also provides tax credits to employers for providing paid leave to workers who must care for children whose schools and daycare have been closed during the pandemic.
  • The U.S. Small Business Administration has expanded its Economic Injury Disaster Loan program and eased application rules, and the CARES Act includes another $349 billion in loan aid – some or all of it forgivable – for small businesses.

Please contact our advisors with any questions you may have and continue checking our Coronavirus (COVID-19) Resource Center for updates.