Sep 03, 2020
By Scott Gerlt • ASA Economist
The USDA’s Economic Research Service (ERS) released an update to its farm income estimates yesterday. The numbers provide a snapshot of the state of the farm sector. Net farm income is forecast to increase in calendar year 2020 to $102.7 billion from $83.7 billion in 2019. This measure includes items such as cash receipts, government payments, value of inventory adjustments (such as changes in stored grain value), rental value of farm dwellings. A slightly different measure is net cash income, which excludes non-cash items such as inventory adjustments, depreciation, and rental value of farm dwellings. Net cash income is expected to increase in 2020 to $115.2 billion from $110.3 in 2019.
It is worth noting that the increase in 2020 incomes is driven by government payments. ERS forecasts those to be $37.2 billion in 2020, up from $22.4 billion in 2019 and $13.7 billion in 2018. The increases in this category are driven by the Market Facilitation Program (MFP), the Coronavirus Food Assistance Program (CFAP) and the Paycheck Protection Program (PPP). ERS estimates the 2020 totals for these programs to be $16.0 billion for CFAP, $3.8 billion for MFP and $5.8 billion for PPP. The $16.0 billion estimate is based on USDA’s initial estimates for the program. As payments for CFAP on August 31 were $9.4 billion and sign-up ends September 11, the $16.0 billion estimate is likely too high. If it were reduced in the farm income numbers to reflect payments to date, the net cash farm income forecast for 2020 actually would be down from 2019.
Subtracting the federal direct government payments from the measures of farm income provides another perspective. Not only does this exclude MFP, PPP and CFAP, but also it removes farm bill programs such as ARC and PLC. In this case, net cash income falls by almost $10 billion in 2020. Net farm income increases by about $4 billion but still remains at about half the level experienced in 2013. A combination of high yields, trade issues and COVID-19 have kept farm income at levels much below those experienced early in the last decade.
Despite increasing government payments, the debt-to-asset ratio for farms has been steadily increasing. This ratio is a measure of debt remaining on farm assets. It provides a snapshot of farm health, as higher ratios indicate that producers are more reliant on credit for their operations. Farm real estate debt has increased dramatically during this period, which has helped drive up this ratio.
The University of Minnesota’s Center for Farm Financial Management collects farm records as part of the Farm Financial Management Database (FINBIN). Its results show that farms have been increasingly moving into higher debt-to-asset categories. For example, in 2013 15% of farms had debt-to-asset ratios above 60%, but in 2019 26% of farms were in that category. While government payments have helped national farm income, farm financial stress appears to be increasing.