An old barn stands tall in the countryside in Greenleaf.

Direct payments to farmers from the U.S. government buoyed net farm income last year well beyond the expectations set for the year in February 2020.

The final farm income and financial forecast to be issued by the U.S. Department of Agriculture’s Economic Research Service in calendar year 2020 had net farm income at more than $20 billion over what had been projected 10 months earlier, thanks largely to those direct payments, which soared to a never before seen $46.5 billion.

While direct payments are still projected to be above average in 2021, a projected drastic decrease from last year’s heights is set to be a driving factor in lower net farm income in the U.S. in 2021, though, Carrie Litkowski, a USDA ERS economist, said during a webinar discussing the first forecast of 2021.

As direct payments ebb away from the 2020 peak and production expenses are forecast to increase, net farm income, a broader measure of income that includes non-cash items like depreciation, is expected to fall 8.1% or $9.8 billion in nominal dollars in 2021, leading to an overall projection of $111.4 billion, Litkowski said.

But despite the decrease, net farm income is still projected to stay ahead of 2019 levels and the 2000-2019 average.

A $21 billion drop in direct payments is the largest factor weighing down the net farm income forecast, even though the $25.3 billion still forecast remains above the 2002-2019 average as well as above 2019 levels. With the decrease in direct payments, the share of net farm income expected to come from those payments is also expected to shrink.

The $25.3 billion figure continues to factor in COVID-19 relief assistance from the government, including $2.5 billion in Coronavirus Food Assistance Program payment, $8 billion from the Consolidated Appropriations Act passed late last year and $2.8 billion in Paycheck Protection Program Loans, Litkowski said.

Production expenses is the category that is expected to weigh on net farm income the most after the drop in direct payments.

These expenses are forecast to increase both in nominal dollars (2.5%) and when adjusted for inflation (0.6%), Litkowski said. Adjusted for inflation, this is the first increase in production expenses overall since 2014.

Costs for feed and labor are expected to see the largest dollar increases, but fuels and oils, fertilizer, livestock and poultry purchases, interest, property taxes and fees, and pesticide costs are all expected to increase as well. The only expenses not projected to increase are seeds and net rent.

Dairy farm businesses — with farm businesses defined as operations that have over $350,000 in gross cash farm income or have farming listed as operator’s primary operation — are among the commodity specializations of farm businesses expected to take a steeper hit this year, with dairy’s decrease due to expected lower milk receipts and the dairy industry having higher than average expenses, Litkowski said.

Average net cash farm income — which just measures cash receipts, including government payments, minus cash expenses — for farm businesses is expected to be down 6% across all regions, with the only region expected to see an increase being the Heartland, which encompasses all of Iowa, Illinois, and Indiana, and parts of Minnesota, South Dakota, Nebraska, Missouri, Kentucky, and Ohio.

The Northern Crescent region, which includes all of Wisconsin, Michigan, part of Minnesota and areas in the Northeast, is expected to fall 14% from 2020.

In general, the trend of growing financial stress levels that began in 2013 is forecast to continue, Litkowski said, and while bankruptcies decreased slightly in 2020, the debt service ratio, the share of production used for debt payments, is expected to go up this year after falling for two years.

The forecast is not all bad news, though. Higher prices and quantities for both livestock and crops are projected to drive up total cash receipts in 2021, Litkowski said.

The change in crop cash receipts is driven more so by a larger increase in quantity, while livestock receipts are driven more so by price changes, she said.

Corn and soybeans are the only commodity groups where cash receipts are projected to increase, but that increase is offsetting decreases in cotton, fruit and nuts, vegetables and melons, and wheat.

Corn and soybean cash receipts are forecast above the 2000-2019 average, with corn projected at the highest level since 2014 and soybeans at the highest level since 2013.

For livestock cash receipts, increases in cattle and calves, broilers and hogs are offsetting projected decreases in dairy and eggs.

“Ultimately, the data released (Feb. 5) demonstrates growing export strength and a rebound in cash receipts for farmers — two positive stories owed largely to growing confidence in our economy,” USDA Director of Communications Matt Herrick said in a statement.

“The farm income forecast and export data ... reflect a growing need need to ramp up our focus on expanding existing markets to create new opportunities for farmers, ranchers and producers at home and abroad.” Herrick said. “New market opportunities will ensure our producers are not reliant on government support or the whims of a handful of trading partners.”