Even with the challenges of the pandemic, in 2020 Minnesota farmers experienced the highest net farm income in seven years.
This was one of the findings in an annual report generated by the University of Minnesota and the Minnesota State Farm Business Management Education program.
The increase in profitability can be attributed to improved commodity prices in the third and fourth quarters of 2020, plus federal payments made related to COVID-19 and natural disasters in parts of the state.
Median net farm income for Minnesota farms reached $106,969 in 2020. This was a welcome increase after seven years of low profitability. When adjusted for inflation, 2020 farm profits were above average compared to the historical records tracked by U-M Extension and the Minnesota State Agricultural Centers of Excellence.
Average net farm income in 2020 was $182,630, an increase from 2019 due to higher yields, crop and livestock prices and a variety of government programs. All farm types showed positive net farm income on an average basis, while the median income was positive for the first time in several years for each farm type. Working capital increased by $105,369 in 2020, while term debt coverage — the ratio to show the ability of the farm to meet debt obligations — was 2.61, an increase of 1.24 from 2019.
Overall, the average Minnesota farm saw improved working capital, positive earned net worth change and improved debt coverage in 2020.
“Minnesota farms have faced many struggles in recent years,” says Pauline Van Nurden with the University of Minnesota’s Center for Farm Financial Management. “This past year’s increased profitability has given many a sigh of relief and renewed hope for the future of their farm.”
Median net farm in 2019 and 2018 were $36,823 and $26,940, respectively, according to the university report.
Across the board
All farm types experienced positive net farm income last year, something not seen since 2014. For much of the year, the pandemic created considerable uncertainty, and many challenges for farms and small businesses alike. Without the commodity price improvements and government payments received, Minnesota farms would have experienced an eighth year of low profits.
“Government support payments played a crucial role for our farms during the initial phases of the pandemic,” says Keith Olander of the Minnesota State Northern Agricultural Center of Excellence. “Federal and state programs benefited farmers and rural small businesses in their time of need.”
FEDERAL BREAKDOWN: The ad hoc government payments in the U-M FINPACK data are listed as “other government payments” in its income statement. This would have included COVID 19-related payments (PPP loan forgiveness, CFAP 1 and 2, EIDL Emergency Advance Grants, MN Small Business Relief Grants, MN CARES Act, and NRCS EQIP Funds for hog and turkey disposal). It would also include WHIP+ disaster payments received in the year and MFP third-tranche payment received in February 2020. The average producer received $81,503 of ad hoc payments in 2020, said Pauline Van Nurden with U-M’s Center for Farm Financial Management. Total average government payments received was $114,334. This includes ad hoc payments plus ARC, PLC, DMC, DAIRI, CRP, EQIP, CSP and SHIPP. Seventy-one percent of payments were related to ad hoc programs.
Government payments accounted for 12% percent of gross farm income for the average producer last year. Many of these payments were related to the pandemic and disasters from previous years. Market and supply chain disruptions loomed large in April and May, but most farms were able to endure and continue operations.
Here's a breakdown by enterprise offered by U-M:
Crop farms — better yields, stronger profits. The median income for crop farms was $109,774. This improved profitability was the result of strong yields and improved year-end prices for Minnesota’s major crops. Crop yields were above average for corn, soybeans and sugarbeets. Crop prices improved by year-end, but cash sale prices received during the 2020 marketing year were mixed. The cash corn price received was 6% below the previous year at $3.40, and the soybean price was 6% better at $8.98.
Crop farms did benefit from government program payments as well, with many payments received in 2020 related to disasters in 2018 and 2019. Other payments were related to low crop prices resulting from COVID-19 during the 2020 marketing year. WHIP+ (Wildfire and Hurricane Indemnity Program Plus) provided crop disaster relief related to the 2018 and 2019 production years.
The Market Facilitation Program provided payments to producers of commodities impacted by trade-related losses, and the Coronavirus Food Assistance Programs offered support for farm operations experiencing market disruptions related to the pandemic.
Dairy upswing. Milk prices started to improve in 2019 and continued into 2020. The median dairy farm earned $173,460 last year, compared to $64,144 in 2019 and $15,907 in 2018.
The average milk price, at $19.73 per hundredweight, was the highest since record prices in 2014.
The challenges of COVID-19 led to many supply-chain disruptions for all livestock markets in the early months of the pandemic. Government assistance helped stabilize the situation and support farms in their time of need.
Pork limited by trade issues. Pork producer net earnings continued to rebound, with the median producer earning $310,042, up from $96,245 in 2019. Wean-to-finish producers made $13 per head.
Again, government payments played a significant role in hog farm profitability last year. Without aid related to trade and pandemic challenges, Minnesota pork producers would have seen profits diminish.
The spring of 2020 caused once-in-a-lifetime disruptions for many of the state’s hog producers. With processing plants closed because of COVID-19, many producers were forced to euthanize hogs. The realities of this caused severe mental health challenges in rural Minnesota. Hog farmers endured, making many difficult management decisions along the way.
Improved returns for beef producers. Beef producers enjoyed a return to positive net farm income in 2020. Median net farm income for beef producers was $42,850, an improvement over the $4,000 in net profits the prior year. Despite COVID-19-related challenges, cattle finishers showed almost $35 in net return per head. But a subset of beef farmers — beef cow-calf producers — only broke even. Beef prices improved less than other commodity prices in the state, and government support was also received by these farms.
Many Minnesota beef operations have additional sources of income, mainly from off-farm sources. This group of producers have the highest levels of nonfarm income in the database, at $55,525 in 2020.
Prospects for 2021
USDA forecasts net farm income to decrease 8% in 2021. Much of this decline is expected because of lower government payments to farmers. Case in point: No farm payments were included in the most recent stimulus legislation, the American Rescue Plan.
Improved commodity prices are expected to continue in 2021. But operating expenses will likely trend up, related to higher energy and increased input prices. Livestock producers will likely see profits limited by increased feed prices.
As spring nears, many farmers are optimistic for a more “normal” year after the uncertainty and challenges of 2020. However, many unknowns remain related to the pandemic and the U.S. economic recovery.
To dig into the data, visit the FINBIN website. However, a full report of the Minnesota data is not yet available here.
See Minnesota State Farm Business Management program reports. Numbers there will differ slightly from U-M, since data are derived from 2,246 farms, including 26 that are across the state line. Check out the northern Minnesota, southern Minnesota, Red River Valley and statewide reports available (executive summary, statewide crop and statewide dairy).