Farm sector profits to increase in 2020, led by government payments

According to the U.S. Department of Agriculture’s Economic Research Service, net farm income is forecast to increase by $36 billion to $119.6 billion in 2020.

If realized, net farm income in 2020, when adjusted for inflation, would be at the highest level since 2013, and 32% above the 2000-2019 average of $90.6 billion. Much of this increase can be attributed to $46.5 billion in direct government farm payments in 2020, a 107.1% increase from 2019. These direct payments include supplemental and ad hoc disaster assistance and COVID-19 relief.

The USDA-ERS released its December 2020 Farm Income Forecast Dec. 2. USDA economist Carrie Litkowski explained the report in a call with media.

There are two primary measures of farm sector income, Litkowski explained. Net cash farm income includes cash receipts from commodities and government payments menus cash expenses. Net farm income includes non-cash items, such as economic depreciation and changes in inventory.

Record government payments

Litkowski reported that net cash farm income is forecast to increase $24.7 billion, or 22.6% to $134.1 billion in 2020. Litkowski said that the majority of the increase in net cash farm income is attributed to direct government farm payments, which are forecast to hit $46.5 billion in 2020, an increase of $24 billion in nominal terms from 2019, or a 107.1% increase.

“Direct payments to farmers increased $8.8 billion in 2019, and will more than double in 2020,” Litkowski said. The expected increase is because of supplemental and ad hoc disaster payments, Coronavirus Food Assistance Program 1 and CFAP 2 payments, Market Facilitation Program payments, and Paycheck Protection Program loans from the small business administration. Total direct government payments to farmers are forecast to be at the highest level ever in 2020, even higher than prior years adjusted for inflation, Litkowski said. The prior high mark for government payments was in 2000, at $33.8 billion adjusted for inflation.

Net farm income for 2020 is predicted to be up 41.3%, or an increase of $35 billion to $119.6 billion. Litkowski said this is the fourth consecutive year of increase in net farm income, and is the highest level since 2013. Both measurements are well above the average observed from 2000 to 2019.

Cash receipts and expenses decline

ERS predicts cash receipts for all commodities will hit $366.5 billion in nominal terms in 2020, a forecasted decrease of $3.2 billion, or less than 1%.

Total animal and animal product receipts will decrease in 2020, by $9.7 billion or 5.5%. Cattle, calves, broilers and hogs will see declines in cash receipts while egg cash receipts are expected to increase 16% on higher prices.

Meanwhile total crop receipts are expected to make up ground with an increase of 3.3% or $6.5 billion more than 2019. Litkowski said corn cash receipts are forecast to fall due to lower prices and shorter bushels. Soybean receipts are forecast to increase 7.5% due to higher prices. And leading the commodities in cash receipts were fruit, nut and vegetable growers who are predicted to see enough of a rise in cash receipts to offset the decline in other commodities.

On the expense side, total production expenses are forecast to decrease 1.5% or $5.2 billion to $343.6 billion in nominal terms. According to Litkowski, while interest expanse and oil and fuel expenses are expected to decrease, fertilizer and net rent for farmland are expected to increase.

“In nominal terms, expenses are expected to be down about $5.2 billion or 1.5%,” Litkowski said. “And adjusted for inflation, expenses are expected to be down 2.7% or %9.5 billion. That’s the sixth consecutive ear of declines in expenses.” She said ERS hasn’t measured a decline in this magnitude or duration since the farm crisis of the 1980s.

She attributed low interest rates for the decline in expenses. She said farmers are seeing the lowest interest rates since 2002. She also said many of those government payments are being leveraged by farmers for operation expansions, rather than debt servicing.

Family living

Litkowski said farm sector equity is predicted to remain relatively stable in 2020, up just 1.1% to $2.69 trillion in nominal terms.

Farm debt is forecast to increase 4% to $435.2 billion, lead by a 6.1% increase in real estate debt, the highest level seen since 1981. She said real estate debt is about 60% of total debt held by farmers in 2020. Farm assets are forecast to increase by 1.5% to $3.12 trillion in 2020, which is a reflection if anticipated increases in real estate value and investments.

Debt relative to assets and equity, or the solvency ratio, measures the farm sector’s ability to repay liabilities through sales of assets. The farm sector debt-to-asset ratio continues to gradually increase to 13.95% on 2020, and has steadily increased since 2013. She emphasized that the increase in the solvency ratio from 2013 to 2020 is still less than that seen 1979 to 1985.

“Solvency ratios below the peak level of the early 1980s remain low enough to suggest the likelihood of default across the sector remains low,” Litkowski said.

Farm business average net cash farm income is forecast to rise 32.6% to $104,500 per farm in 2020. Wheat and cotton farms are expected to see the largest net cash farm income increase in 2020. Meanwhile livestock net cash farm incomes are expected to be higher due to higher government payments and less cash prices. The dairy sector is expected to see the largest increase in net cash farm income among operations, due to higher government payments in 2020.

Median income for farm households will increase to $86,992 in 2020, up 4.7% from 2019. Litkowski said the rise in median farm household income is partly because of increases in supplemental and ad hoc disaster assistance program payments, such as the Paycheck Protection Program and the Coronavirus Food Assistance Programs 1 and 2, to help those affected by the COVID-19 pandemic. This offsets the off-farm income that many farm households rely on, which is forecast to drop 1.6% to $67,950 in 2020.

Jennifer M. Latzke can be reached at 620-227-1807 or [email protected].