Any macro-economic recovery in the U.S. is likely to be slow and uneven, following the outbreak of COVID-19 in early March, but if and when the coronavirus threat is past, there's potential for the recovery to spark inflation.

Ag economist Brian Briggeman summarized the macro-economic outlook during an update he gave to help kick-off Kansas State University's annual Risk and Profit Conference, which continues through Friday and is being held this year in an online format.

What ag producers should expect and how to position themselves was the topic of several K-State economists who weighed in on macro-economic and farm financial conditions.

In an annual survey of farm lenders nationwide, the ag economic department found rising concern about the financial outlook for farmers and ranchers.

"This year will be the least profitable year in the last one to two decades for all categories of producers in our area, including corn/soybean, cattle feeding and hogs," wrote one lender who completed the May survey. "There will be major adjustments for many producers if prices do not improve within the next 6-12 months."

Lenders expect to see lower interest rates and lower loan volume, but also more nonconforming loans, which signals a switch in their mood from "cautious optimism" in late 2019 to "mild pessimism" for 2020, summarized Allen Featherstone, head of the ag economics department at KSU.

"A lot will ride on whether Congress negotiates a coronavirus relief package," Briggeman added. "Market support payments made a huge difference in 2019."

The agricultural community is caught up in the impacts of a global disease pandemic and unprecedented slowdown in domestic economic activity. In the second quarter, the GDP contracted to a record low and unemployment rose above 10 percent.

Total public debt as a share of U.S. gross domestic product is projected to eclipse 100 percent as of September, according to the Congressional Budget Office, Briggeman said. The record is 106.1 percent, which was set during World War II.

"Things to think about, we are under very high uncertainty and not for sure where we are going, so there's a premium on liquidity right now," he said. "Building liquidity and working capital is very important, in order to weather the storm."

Continue to look for ways manage costs and gain efficiencies, but don't rule out growth opportunities, although they should be carefully evaluated to make sure they fit into the farm's long term plan, he added.

Records collected by the Kansas Farm Business Management Association show net farm income rose last year, but fully 75 percent of that was attributed to market support payments offered by the Trump administration in response to renegotiated trade deals.

Briggeman said such a high proportion was troubling.

"We cannot build our business plan off of something we can't control. We can't be sure government subsidies will always be there," he said.

The low interest rate environment has continued to support land values, even though uncertainty in net farm income tends to push those down, he added.

"We see land values leveling off rather than falling," he said.

Deflation and inflation are both potential threats going forward.

"The Fed is doing whatever it can to avoid a deflationary period," Briggeman said. "Negative interest rates are not likely to happen here in U.S., but if it was to happen, it would pretty bad. But my expectation is that would not happen. The Fed is throwing all kinds of tools at it (to prevent that.)"

However, with government debt now reaching $7 trillion — compared to less than a trillion before the 2008 financial crisis and $5 trillion prior to the viral outbreak — there are starting to be a few signals that inflation could occur in the future.

"Once the pandemic abates, we will take off, and then the question will become more toward inflation," Briggeman said. "There is a lot of pent-up demand that could come into the marketplace."

Another thing that could trigger inflation is a shift away from globalization toward more protectionist trade policies, he added.

In the short-term, however, Featherstone said farmers should anticipate lower borrowing rates, particularly for intermediate loans covering things like buildings and machinery. Limiting variable rate loans and restructuring debt offer ways for farmers to hedge against possible inflation in the future, the two economists said.