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Serving: United States

Farm economy looking up, but proceed with caution

Shelley E. Huguley swfp-shelley-huguley-grain-sunset.jpg
2021 Southwest Economic Outlook: Southwest economists and specialists weigh in on the 2021 economic outlook.

outlook-logo-21-perry.jpgWhile 2020 was a year of incredible uncertainty and adjustment, information regarding how the agricultural sector is weathering the storm is beginning to surface. In the USDA’s September projection of farm income, they estimated that both net farm income and net cash farm income would be above the 2000-2019 historic average when adjusted for inflation. This projected net farm income of 102.7 billion is occurring despite only a slight increase (1%) in crop receipts and a decline (8.1%) in animal/animal product receipts.  Overall farm cash receipts were forecast to decrease 12.3 billion from 2019.  

The decline in cash receipts is being more than made up for by a decrease in production expenses (1.3%), a decrease in interest expenses (27.1%), and a historically large influx of cash from direct government farm payments.  Direct government payments, excluding USDA loans and insurance indemnity payments, are forecast at 37.2 billion. The majority of this 65.7% increase from the previous year is from ad hoc disaster assistance for COVID-19 relief. These payments appear to be trickling through the agricultural industry. For example, John Deere’s stock price is up 33% since the start of the year, spurred by stronger than expected agricultural equipment sales.  

Although reinvesting excess cash into the farm business is common practice, often in the form of new machinery, it is important to look at farm financial performance without the expectation of the significant additional ad hoc direct government payments. We are not suggesting that farmers should not participate in government programs or accept the financial assistance they provide. They are designed to help the farm sector (and other businesses) through difficult times often caused by factors beyond the control of individual managers. However, when projecting farm financial performance for 2021, it is important to remember that the significant increase in government payments experienced in the unprecedented year of 2020 is unlikely to continue.  

With that said there are hopeful signs indicating that overall farm financial performance may continue to improve modestly even without the significant additional government payment. Crop prices are increasing (current and futures price projections for many crop commodities have increased substantially even in the short time since the latest USDA farm financial projections were released), and most projections suggest that input prices will remain at relatively low levels compared to recent history. Unlike recent years, current budget projections based on average yields, current price forecasts, and current projected major input prices suggest some room for positive margins for many of our common Southern Plains crop production programs. Of course, those projections are always subject to local weather conditions, etc.  Unfortunately, budget projections for many of our common Southern Plains livestock production programs are not as positive. Cattle price projections remain challenged due to uncertainty and burdensome supplies. Our message for individual farms is that it is important to consider your farm business’ financial health and evaluate financial projections under the assumption that the significant ad hoc increase in government payments experienced this past year will likely not be repeated.   

2021 Outlook articles:

Source: is Oklahoma State University and Texas A&M University, which is solely responsible for the information provided and is wholly owned by the source. Informa Business Media and all its subsidiaries are not responsible for any of the content contained in this information asset.
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