Despite challenges, 2020 was a relatively good year financially for U.S. farmers. But 2021 is less promising, with farm income expected to drop, primarily because of reduced government payments, according to estimates released Feb. 5, 2021, by the U.S. Department of Agriculture's Economic Research Service, or ERS.
The report looked at both final estimates for 2020 and initial estimates for 2021. It covers about 2 million farms that operate about 900 million acres of land, as well as 865,000 farm businesses and 6 million people living in farm households.
"In broadest summary, both measures of farm income are projected to decrease in 2021 after increasing in 2020," said Carrie Litkowski, a senior economist with the Economic Research Service. She presented highlights of the report online to the news media.
Net farm income in 2021 is projected to drop $9.8 billion, or 8.1%, to $111.4 billion. Net cash farm income is forecast to decline $7.9 billion, or 5.8% to $128.3 billion in 2021. Net farm income and net cash farm income are defined at the end of this article.
The declines in the two types of farm income need to be taken in perspective, ERS said. They come on the heels of 2020, which brought the highest net farm income and net cash farm income in recent years. Further, the 2021 estimates, if they turn out to be accurate, are still considerably above their respective 2000-19 averages
Why the projected income drops from 2020 to 2021? Blame primarily a huge decline in projected direct government farm payments, which are pegged at $25.3 billion in 2021, a decrease of $21 billion, or 45.3% That reflects an anticipated decline in 2021 for COVID-19 relief.
In 2020, government payments accounted for 43% of farm income. In 2021, government payments will account for 28% of farm income, Litkowski said.
The projected income declines also reflect anticipated higher production expenses in 2021. Total production expenses are forecast to rise $8.6 billion, or 2.5%, to $53.7 billion, largely the result on more spending on feed, fertilizer and labor, ERS said.
Another negative from the report: Farm debt is forecast to rise by $9.6 billion, or 2.2%, in 2021, reflecting more real estate debt.
On the plus side, farm sector equity — equity is the difference between what, if anything, is owed on property and what the property currently is worth — is forecast to rise $47.8 billion. or 1.8%, to $2.74 trillion That reflects an anticipated increase in the value of real estate assets in the farm sector.
Perhaps most importantly, the 2020-21 estimates are positive for U.S. farm balance sheets, the financial statement that measures assets, liabilities and equity. Overall, "the balance sheet remains strong and stable," Litkowski said.
More key estimates:
Other key estimates included in the report:
- Total median farm household income — median is the middle number in a list of numbers — is forecast to increase to $86,086 in 2020 and then remain relatively flat in 2021 at $86,917. The counters the 2015-18 trend of declining median farm household income. More off-farm income apparently is at least partly responsible for the 2020 upturn.
- Soybean receipts in 2021 are expected to rise $9.4 billion, or 24.3%, because of forecasted growth in both prices and quantities sold. "Soybean receipts are expected to be at their highest level since 2013," Litkowski said.
- Corn receipts are forecast to rise by $6.7 billion, or 14% in 2021, again because of anticipated higher prices and quantities sold.
- Wheat receipts are projected to rise $200,000 million, or 2.2%, reflecting anticipated small increases in prices and quantities sold.
- Total animal/animal product cash receipts are expected to increase $8.6 billion. or 5.2%. That's based on anticipated growth in receipts for cattle and calves, broilers and hogs, with declining cash receipts for milk and chicken eggs.
Average net cash farm income for all businesses nationwide in 2021 is expected to drop 6%. But the national average contained considerable regional variation.
Net cash farm income in the area designated by ERS as Northern Great Plains, which consists of North Dakota, most of South Dakota, and parts of Montana and Minnesota, is projected to drop just 1%. The so-called Heartland area, which includes most of Iowa and parts of Minnesota and South Dakota, is projected to rise 9% in 2001 — an increase that reflects the importance of soybeans and corn in that area.
Some parts of the country, where soybeans and corn aren't common, are projected to have their average net cash farm income drop by as much as 19% in 2021.
Two types of farm income
Both net cash farm income and net farm income are important measures of farm profitability.
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.
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.