Farm bankruptcies continue to trend upward and are at a rate of about 3 per 10,000 farms, said Carrie Litkowski, an economist with the United States Department of Agriculture’s Economic Research Service, during the first farm income and financial forecast of 2020.
However, although there are always farmers who may be struggling, Litkowski said, the likelihood of default across the sector remains historically low despite increases since 2013.
In general, trends indicate growing financial stress, as the risk of insolvency is the highest it has been since 2003, Litkowski said.
Net cash farm income is forecast to decrease while net farm income is projected in increase in 2020, Litkowski said.
Net cash farm income is forecast at $109.6 billion in 2020, down 9% from 2019 in nominal (current) dollars (down 10.7% adjusted for inflation). Inflation is forecast at 1.8% in 2020.
Net cash farm income had spiked in 2019 with the selling of crop inventories. The forecast 2020 decrease brings net cash farm income back down close to 2018 levels.
Net farm income, which factors in non-cash items such as depreciation and inventory changes, however, is forecast at $96.7 billion, an increase of 3.3% (1.4% adjusted for inflation).
Adjusted for inflation, the net farm income is projected to be at its highest level since 2014, Litkowski said.
The discrepancy between net cash farm income and net farm income, with one decreasing while the other increases, is “unusual but not unheard of,” Litkowski said.
Overall, farm sector profits are expected to be near average in 2020, Litkowski said.
The forecast addressed the 2 million farms, 951,000-plus farm businesses, and 6 million-plus people living in farm households in the U.S.
Farm businesses — which make up just under half of all farms — include intermediate and commercial farms (operations with the most production, assets and debt).
All types of crop farm businesses are expected to have lower average net cash farm income, after adjusting for inflation, in 2020 after experiencing an increase in 2019.
The outlook for livestock is more mixed, with dairy and hogs projected to lead in growth, while cattle/calves and poultry lag further behind. Overall, an increase is expected, though, Litkowski said.
Total production expenses are expected to increase 3% nominally (1.1% when adjusted for inflation).
Increased expenses include feed and labor expenses as well as higher fuel prices, Litkowski said, while the only notable decrease was interest expenses, which are forecast to fall following lower interest rates.
While other direct payments to farmers from the government are expected to increase, due to a dramatic projected drop in Market Facilitation Program payments — the third tranche of MFP payments recently issued is expected to be the last — total direct payments are forecast to decrease 37%, Litkowski said.
The average net farm income for all farm businesses is expected to be down 9%. However, the Northern Crescent region, which includes Wisconsin, part of Minnesota, Michigan, and much of the Northeast, is expected to decrease slightly less at 6%.
The Fruitful Rim region, largely consisting of southern and western coastal areas, had the smallest decrease at 4%, while the Northern Great Plains at 16% the Mississippi Portal at 17% suffered the largest projected decreases.
As for the well-being of farm-operator households, Litkowski reported a nominal decrease of 0.3% (2.1% adjusted for inflation) in median total household income.
In the 2020 forecast, median farm income was reported as -$1,840; median off-farm income was reported as $68,689; and total median income was reported as $76,590. Because each number is the median, the farm income and off-farm income medians do not add up to the total median, Litkowski said.
This forecast was not adjusted due to the new coronavirus outbreak, Litkowski said, as it was too recent.
Impacts from the Phase 1 trade deal with China on the forecast were limited to whatever impact they may have had on the reports, such as the World Agricultural Supply and Demand Estimates, and other information from analysts that are used to create the forecast, Litkowski said.
The recency of developments like the coronavirus outbreak and the Phase 1 trade deal are why ERS provides three forecasts throughout the year, she said. The next 2020 forecast is scheduled for Sept. 2.
To see more data on U.S. and state-level farm income and wealth statistics, visit tinyurl.com/y6tcj8ep.