U.S. Farm Income Outlook: December 2020 Forecast

The U.S. Department of Agriculture (USDA) projects that U.S. farm profitability—as measured by net farm income and net cash income—increased substantially in 2020 from 2019 levels. In nominal dollars (not adjusted for inflation), both income measures are projected to attain their highest levels since 2013. Net farm income (calculated on an accrual basis) was projected to rise 43.1% year-over-year in 2020 to $119.6 billion, up $36.0 billion from last year. Net cash income (calculated on a cash-flow basis), was projected at $134.1 billion in 2020, up $24.7 billion or 22.6% from 2019. The year-to-year increase in both net farm income and net cash farm income is primarily due to a substantial increase in direct government payments to a record $46.5 billion in 2020. At this level, government support payments would account for nearly 39% of net farm income—the highest share since the year 2000, when government subsidies accounted for 46% of net farm income. In contrast with federal direct payments to producers, farm income from cash sales of crop and livestock products and other farm-related activities were forecasted to decline by 0.9% in 2020. The record government farm assistance in 2020 included $12.6 billion from farm programs authorized by the 2018 farm bill (P.L. 115-334) and $33.9 billion in ad hoc (i.e., authorized outside of omnibus farm legislation) program outlays, including $3.7 billion from the 2019 Market Facilitation Program (MFP) payments, $5.9 billion from the Paycheck Protection Program (PPP), and $24.3 billion from the Coronavirus Food Assistance Program (CFAP). If realized, the 2020 government payments of $46.5 billion would represent a 107.1% increase from 2019’s $22.4 billion in government support, and would nearly double the previous record of $24.4 billion (nominal dollars) in 2005. Farm asset values in 2020 were projected at $3.1 trillion, up 1.5% from 2019. Farm asset values reflect farm investors’ and lenders’ expectations about long-term profitability of farm sector investments. Another measure of the farm sector’s well-being is aggregate farm debt, which was projected to be at a record $435.2 billion in 2020—up 4.0% from 2019. Both the debt-to-asset and the debt-to-equity ratios have risen for eight consecutive years as both ratios inch upward toward their long-run historical averages. At the farm household level, average farm household incomes have been well above average U.S. household incomes since the late 1990s. However, this advantage derives primarily from off-farm income as a share of farm household total income. USDA will continue to fine-tune farm income estimates for 2020 as more and better data become available through 2021. USDA released its first forecast of U.S. farm income for 2021 on February 5, 2021. Farm prices for corn, soybeans, wheat, and cotton ended 2020 on an upswing—driven by a declining outlook for carryover stocks and increasing international demand. Despite this hopeful pattern for commodity prices, the outlook for 2021 farm income remains clouded by several critical uncertainties. The potential speed at which the economic effects of the Coronavirus Disease 2019 (COVID-19) pandemic could be abated as vaccination distribution expands nationwide is unknown. This may be critical to when and how the general economy will recover and consumer demand patterns return to normal. Another uncertainty is whether agricultural and food supply chains will emerge in a more resilient and responsive form that revives investment and growth at both the producer and retail levels. Finally, despite the signing of a Phase One trade agreement with China on January 15, 2020, it is unclear how soon—if at all—the United States may resume normal trade with China. USDA Farm Income Projections as of December 2, 2020 The most recent aggregate national net farm income projections for calendar year 2020 were issued by USDA’s Economic Research Service (ERS) on December 2, 2020. This is the third of three ERS forecasts for 2020: the first farm income forecast was announced on February 5, 2020. The second forecast was released on September 2, 2020. The first USDA forecast of U.S. net farm income for 2021 occurred on February 5, 2021, and will be discussed in a separate report.