U.S. farm income projected above pre-pandemic levels: study

COLUMBIA, Mo. — Agricultural markets still face uncertainty, but analysts see optimistic signs going forward in 2021.

The University of Missouri’s Food and Agricultural Policy Research Institute found that U.S. farm income will decline to $112 billion in 2021, but would still be much higher than it was from 2015-2019.

Net farm income increased to $121 billion in 2020, the highest level since 2013, primarily because of $46 billion in government payments, the report noted.

“The COVID-19 pandemic upended agricultural markets, contributing to a dismal outlook for the farm economy in the spring and summer of 2020,” said Patrick Westhoff in a March 17 webinar. Westhoff is FAPRI director and the Howard Cowden professor of agricultural and applied economics at the university’s College of Agriculture, Food and Natural Resources.

“A series of emergency support programs provided record government payments to farmers, and prices for many commodities rebounded in the final months of the year, resulting in a large increase in 2020 net farm income,” Westhoff said. “Looking ahead, the outlook is uncertain, but certainly more optimistic than it was a few months ago.”

Key Highlights

• Major crop prices retreat from recent peaks, but remain above the prices of 2015-2019. For the crop to be harvested in the fall of 2021, projected corn prices average $4.06 per bushel and soybeans average $10.61 per bushel.

• Increasing imports by China explain much of the recent strength in grain and oilseed markets. If China’s purchases continue at the recent pace, U.S. exports and market prices could be higher than projected here, but there is downside risk, as well.

• Higher prices and assumed normal spring planting conditions allow 2021 total area planted to major crops to rebound to 2018 levels. That could allow planted acreage for corn, soybeans and wheat to all expand in the same year. Projected soybean acreage exceeds 90 million acres.

• Average prices for livestock and poultry increase in 2021 as the sector returns to more normal operating conditions after the plant closures and other disruptions of 2020.

• After the pandemic reduced driving and fuel use in 2020, projected ethanol production and use increase in 2021, but do not immediately rebound to pre-COVID levels.

• Crop insurance and the Price Loss Coverage program account for most projected support to the farm sector. These programs provide far less support than the Market Facilitation Program, the Coronavirus Food Assistance Program and the Paycheck Protection Program provided in 2020.

• The final rounds of ad-hoc assistance payments push total outlays on selected mandatory farm-related programs to a record $51 billion in fiscal year 2021. Without this additional assistance, the total drops back to an annual average of $23 billion between fiscal year 2022 and fiscal year 2030, only slightly above the fiscal year 2015-2019 average.

• Net farm income drops to $112 billion in 2021, in spite of a $25 billion increase in crop and livestock receipts. Reduced government payments and higher production costs explain the drop in net farm income.

• Higher levels of net farm income support an increase in land and farm asset values in 2021. The result is the first slight dip in the farm debt-to-asset ratio since 2012. In later years, declining real net farm income and an eventual increase in interest rates put pressure on asset values and cause the debt-to-asset ratio to resume its increase.

• Consumer food price inflation increased to 3.4% in 2020, in part because of a wider gap between producer prices for livestock and consumer prices for meat. Food inflation moderates to 2.1% in 2021 as conditions normalize, and food inflation is similar to overall inflation in subsequent years.

“This information is meant to serve a variety of purposes. It’s a broad-brush, big-picture look at agriculture,” Westhoff said.

“Our goal is to give a general view of what the next 10 years might look like if we stay on the current path. The baseline outlook can then serve as a point of comparison for evaluating the impacts of possible policy changes.”