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Federal spending surge supports farm income

Livestock Outlook: USDA projects 2020 net farm income as highest since 2013 — thanks to federal payments.

Lee Schulz

October 16, 2020

6 Min Read
Combine in cornfield during the fall season
ASSISTANCE ADDS UP: Federal farm program payments, COVID-19 assistance and disaster aid equal 36% of projected net farm income in 2020.Rod Swoboda

The good news is USDA’s Economic Research Service is forecasting U.S. net farm income will total $102.7 billion in 2020, up 23% from $83.7 billion in 2019. The not-so-good news is federal government direct farm program payments are projected to rise by 66% to $37.2 billion. This follows a 64% climb from 2018 to 2019. In short, an amount equal to 36% of projected 2020 net farm income is direct transfer payments to farmers.

Most direct payments are administered by USDA under the 2018 Farm Bill. In 2019, the Market Facilitation Program drove a 64% surge in direct payments. MFP payments were intended to help offset income losses due to trade disruptions pressuring commodity prices. Even with those payments, 2019 net farm income only rose 3% from 2018.

The 2020 increase in federal farm support reflects higher anticipated payments from supplemental and ad hoc disaster assistance, mainly direct payments for COVID-19-related assistance, which includes the Coronavirus Food Assistance Program and Paycheck Protection Program. Supplemental and ad hoc disaster payments in 2020 are forecast at $23.4 billion, an increase of $22 billion from the $1.4 billion in 2019. These new disaster payments, which did not exist two years ago, represent 59% of forecasted total government direct payments.

Payments to rise further

On Sept. 17, President Donald Trump and Secretary of Agriculture Sonny Perdue announced USDA will expand the Coronavirus Food Assistance Program, termed CFAP 2. Those payments could transfer up to an additional $14 billion to farmers who continue to face market disruptions and associated costs because of COVID-19. USDA-ERS could not include them in the farm income and finances forecasts released September 2.

Supplemental and ad hoc disaster assistance are at the highest since 2014, when payments were $4.7 billion, which accounted for 48% of federal government direct farm program payments. Even though disaster payments were relatively high in 2014, they only accounted for 5% of net farm income. USDA’s Economic Research Service forecasted 2020 disaster payments to account for 23% of this year’s net farm income. That share will rise once CFAP 2 is included in these numbers.

If realized, 2020 net farm income will be the highest since 2013 and will represent four consecutive years of rising farm income. However, without the increase in supplemental and ad hoc disaster assistance in 2020, net farm income would have declined. The farm economy and income producers receive from the market largely remain depressed.

Crops strengthen, livestock lags

Combined farm income from the sale of crops and livestock is forecast to fall by $12.3 billion compared to 2019. The $358.3 billion in cash receipts would be down 3% from 2019. Livestock cash receipts are forecast to be down 8% in 2020, while crops are forecast to be up 1% from 2019. Price and quantity signals in the forecasts are significantly different for crops and livestock. Positive price effects and negative quantity effects are forecast for crop cash receipts. Livestock producers face the opposite. They are experiencing large negative price effects and a much smaller, but positive, quantity effect in 2020.

The largest forecasted decline in livestock cash receipts is broilers, down 23% from 2019. Hogs are forecast down 16%, and cattle and calves are forecast down 8% from 2019. Dairy cash receipts would have a modest decline at down 2%. Eggs could be 12% higher and turkeys 18% higher. Corn cash receipts are forecast to sag by 6%. Soybeans could see a more modest decline of 1%. Hay cash receipts could be up 5%, the highest since 2014.

Partially offsetting the decline in farm revenues could be a slight decline of about 1% in farm cash expenses compared to 2019. On a percentage change basis, the largest forecasted declines are interest expenses, fuels and oils, and feeder animals. Rent, property taxes and fees, fertilizer, seed, labor, and feed are forecast higher in 2020.

Farm debt load rising

An ERS forecast in February projected total farm debt in 2020 at a record $425.3 billion. The September forecast projects total farm debt at a record $433.8 billion. Despite higher farm debt, interest expenses are down due to lower interest rates. Nearly 65% of farm debt is real estate. Real estate debt is projected to climb 6% in 2020, compared to 2019, to a record-high $281.6 billion. Non-real estate debt is projected to rise only slightly to $152.2 billion.

Farm assets, including farmland, animals, machinery and vehicles and crops in inventory, are projected at $3.1 trillion, 1% higher than 2019. Most of this rise, on a dollar basis, is related to higher farmland values, but machinery and vehicles and financial assets are projected higher in 2020.

Based on forecasted 2020 debt and asset levels, the debt-to-asset ratio is projected at 14% for 2020. Every year since 2012, debt-to-asset levels have risen. The current ratio, which measures the ability of agriculture to pay short- and long-term debt, calculated as current assets divided by current liabilities, is projected at 1.62, the lowest level since 2016. While farm assets remain greater than liabilities, a rapidly declining working capital ratio of 0.15 in 2020 and the lowest level since the series was first recorded in 2009, suggest some farms may be unable to service debt and accounts payable with existing assets. The rate of return on assets for 2020 is projected at 2.91%. This would be the third consecutive year of below 3%. A stark contrast to the 14% returns experienced, on average, from 2010 to 2012.

As was the case during the farm financial crisis of the 1980s, stress is not evenly distributed across all farms. Farms with high debt loads, limited equity, weak profitability and shaky cash flow positions are most vulnerable.


Iowa ranks 4th nationally in net farm income

On Sept. 2, USDA’s Economic Research Service also provided the first state-level farm income and wealth statistics estimates for 2019.

Iowa farmers during 2019 brought in a total of $27.536 billion in cash receipts. That represents a 1% increase over 2018. Iowa’s livestock cash receipts totaled $14.005 billion last year, down 2% from 2018, while Iowa’s crop cash receipts totaled $13.531 billion, up 3%.

Iowa ranked No. 2 in the U.S. last year in farm cash receipts, behind only California ($50.117 billion). Iowa ranked No. 4 in 2019 in net farm income behind California, Texas and Nebraska. Net farm income is a broad measure of farm profits.

Corn again ranked as Iowa’s top farm commodity in terms of cash receipts, with $8.748 billion. Hogs ranked second at $7.771 billion, soybeans third at $4.459 billion, and cattle and calves fourth at $3.932 billion.

Iowa is the No. 1 corn-producing state with 17.5% of the share of U.S. cash receipts for corn. Iowa is also No. 1 in hog production with 35.3% of the share of U.S. cash receipts for hogs. Iowa ranks No. 2 in soybean production (13.1% share of U.S. receipts) and No. 4 in cattle and calves produced (5.9% share).

Even though they have been largely overshadowed by Iowa’s big four commodities, other commodities have long played an important role in Iowa’s diverse ag industry. Iowa is No. 1 in egg production (11% share of U.S. receipts), No. 6 in turkeys (6.7% share), No. 6 in oats (6.7% share) and No. 11 in dairy production (2.5% share).

Schulz is the Iowa State University Extension livestock economist. Email [email protected].


About the Author(s)

Lee Schulz

Lee Schulz is the Iowa State University Extension livestock economist.

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