While direct payments to farmers in 2020 are projected to be at historic highs, net farm income excluding those payments is still forecast to be higher in 2020 than by that same metric in 2019, said Carrie Litkowski, an economist with the United States Department of Agriculture’s Economic Research Service, during the second farm income and financial forecast of the year.
The forecast, discussed in a Sept. 2 webinar, is the first of the year to consider COVID-19 impacts. The previous forecast was issued in February before the pandemic gained a strong foothold in the United States.
Changes to the forecast resulting from the COVID-19 pandemic are most evident in the projected amount of direct payments U.S. farmers are expected to receive.
In the February forecast, Litkowski had discussed that projected total direct payments to farms were likely to decrease by 37% this year, largely due to a large projected drop in Market Facilitation Program payments (the current forecast does still reflect significantly lower MFP payments than in 2019).
What that early February forecast could not factor in, however, was the spread of COVID-19 that sparked the U.S. government to issue massive amounts of direct payments to the industry.
According to the current 2020 projections discussed by Litkowski, MFP payments, function of crop price payments and conservation payments are expected to account for well under half of direct payments.
Largely accounting for the projected $14.7 billion year-over-year increase is the “all other payments” category, a category expected to total $23.7 billion. Direct payments from the Coronavirus Food Assistance Program are expected to total $16 billion; Paycheck Protection Program loans (counted as direct payments under the assumption that they will be forgiven) are expected to total $5.8 billion; and all other ad hoc and supplemental payments are expected to total $1.9 billion.
The CFAP total is based on the amount of money said to be available for the program. The application deadline for CFAP payments is Sept. 11. There is some talk of a second round of CFAP, Litkowski said.
With those additional COVID-related direct payments, the total amount of direct payments to farmers, even adjusted for adjusted for inflation, is expected to be at the highest level since at least 2002.
When adjusted for inflation, the previous peak in those years, which occurred, in 2005, is still several billion dollars below the forecast total for 2020.
Taking direct payments — as well as federal insurance indemnities — out of the equation for 2019 and 2020, however, would still leave net income a little higher this year than last, the forecast showed.
Total crop cash receipts are forecast to slightly increase in 2020, while total animal and animal product cash receipts are forecast to fall in 2020.
Livestock farm businesses are in general expected to have a lower average net cash farm income in 2020 than in 2019, led by decreases in the hog commodity specialization, but all crop farm businesses are expected to have higher average net cash farm income, led by cotton, specialty crops and soybeans.
While animal and crop production forecasts look to overall remain relatively stable, Litkowski said, total production expenses are expected to decrease, having a positive effect on net income.
Lower interest expenses are expected to lead the decrease in production expenses, the forecast showed. Feed and labor expenses are among the individual expense items still expected to increase, while fuels and oils and livestock/poultry purchases are among the other expenses expected to decrease.
Total production expenses are projected to fall 2.1% when adjusted for inflation (down 1.3% nominally), which would be the sixth straight year of an inflation-adjusted decline if realized, Litkowski said.
Overall, net farm income, which factors in non-cash items such as depreciation and inventory changes, is forecast at $102.7 billion, up from the February forecast of $96.7 billion, primarily driven by the increased government payments and lower expenses.
Bankruptcies, according to the forecast, are expected to be a little under the rate for 2019, at slightly below 3 bankruptcies per 10,000 farms.
The farm sector will continue to experience financial stress, as the risk of insolvency remains high; however, the likelihood of default remains historically low despite several years of increases, Litkowski said.
The latest forecast did not factor in any potential effects from recent weather events, including the derecho that primarily hit Iowa and Hurricane Laura, Litkowski said. Impacts of those storms are still being evaluated and are more likely to be reflected in the next 2020 forecast, scheduled to be discussed on Dec. 2.