Agricultural commodity prices have been poor, the COVID-19 pandemic is raging and export markets have been disrupted. Even so, the U.S. farm sector is expected to make more money this year than in 2019, thanks in large part to a whopping 107% increase in direct government payments, according to new U.S. Department of Agriculture forecasts released Wednesday, Dec. 2.

Carrie Litkowski, a senior economist with the Economic Research Service, or ERS, an arm of USDA, presented the report online to the news media. Among the report's highlights:

  • 2020 net cash farm income is forecast at $134.1 billion, up 22.6% from 2019.

  • 2020 net farm income is pegged to rise 43.1% to $119.6 billion.

  • A rise of $24 billion in federal payments keyed the projected increase in net farm income. Also contributing were a $6.5 billion rise in the value of crop production — primarily due to higher soybean receipts —as well as a $5.2 billion decline in production expenses, according to the forecast, which measures 2 million farms and more than 965,000 farm businesses.

  • Livestock receipts, as measured in net farm income, will drop a projected $9.7 billion this year.
  • Average net cash farm income is projected to rise 33% nationally this year. The Northern Great Plains area, which includes North Dakota, Montana and most of South Dakota, is pegged for a 42% increase, with the Northern Crescent area, which includes Minnesota, expected to have a 33% increase. The Heartland area, which includes Iowa and part of eastern South Dakota, is pegged for a 27% increase.

Why the relatively modest increase in the Heartland?

"The Heartland is not expected to have quite as much an increase in government payments as other regions," Litkowski said. Difficult market conditions for hogs, an important commodity in much of the Heartland area, also are a factor, she said.

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Both measures important

Though their differences can be confusing, both net cash farm income and net farm income are important measures.

Net cash farm income consists of cash receipts from farming as well as farm-related income, including government payments, minus cash expenses.

Net farm income, a broader measure of profits, incorporates noncash items, including changes in inventories and economic depreciation.

The difference between net cash farm income and net farm income reflects, in part, whether crops and livestock raised in one year are sold in that year or a subsequent year. That decision affects inventories and consequently net farm income.

Both measures "have their uses. I can't say one is more important than the other. Net farm income is more comprehensive," while net cash farm income "gives us an idea of cash flow," Litkowski said.

Expenses, balance sheets

The overall decline in projected farm expenses this year largely reflects lower interest and fuel expenses, which more than offset anticipated increases in rental rates and property taxes.

The new report also projects that farm balance sheets will remain relatively strong, even though overall debt is rising, largely because of higher real estate debt.

Why is debt rising when projected income also is rising?

"Farmers may not use additional income to pay down their debt, especially if interest rates are really low," as they are now, Litkowski said.

The ERS releases farm income statement and balance sheet estimates and forecasts three times a year. These widely watched projections provide guidance to policymakers, lenders, commodity organizations, farmers and others interest in the farm economy's financial status.