Focus on Ag: 2021 US farm income expected to increase
Based on the data in the latest 2021 Farm Income Forecast that was released by the USDA Economic Research Service in September, U.S. net farm income is expected to increase by $18.5 billion, or 19.5%, above the 2020 U.S. net farm income level.
The estimated 2021 net farm income is now estimated at $113 billion, which would be the highest inflation adjusted net farm income since 2013. In the recent farm income report, USDA estimated the total U.S. net cash income for 2021 at $134.7 billion, which is an increase of $23.8 billion or 21.5% from a year earlier. If realized, the 2021 net cash income would be at the highest inflation adjusted net cash income level since 2014.
Net cash income includes cash receipts from all farm-related income, including government payments, minus cash expenses for the year. Net farm income is accrual-based, which includes adjustments in the cash income for changes in inventories, depreciation and rental income. Generally, the accrual-based net farm income is a truer measure of overall profitability in the farm sector.
Following are some highlights from the latest USDA 2021 Farm Income Report:
Overall, 2021 cash receipts for all commodities on U.S. farms are estimated at $421.5 billion, which is an increase of $64.3 billion, or 18%, compared to 2020.
Total 2021 crop receipts are expected to increase by $37.9 billion, or 19.7%, over 2020 levels, primarily due to an estimated increase of $36.3 billion, or 43.6%, in cash receipts from corn and soybeans compared to 2020.
Receipts from wheat sales are expected to increase by $2.2 billion compared to a year earlier, with higher market prices more than offsetting reduced 2021 wheat yields that resulted from the drought. Receipts from cotton production, as well as fruit and vegetable production, are expected to decline in 2021, while sugar beet receipts are likely to increase slightly.
Total cash receipts from livestock production in 2021 are expected to increase by $26.5 billion, or 16%, reflecting a rebound from the market disruptions and price declines that resulted from the COVID-19 outbreak in 2020. As compared to a year earlier, 2021 receipts from cattle sales are expected to be $8.3 billion higher than a year earlier, with hog sales increasing by $9.4 billion and broiler sales by $7.3 billion. Milk, turkey and egg production sales in 2021 are expected to increase by smaller amounts.
Of the $64.3 billion increase in total U.S. cash farm receipts for crops and livestock, $43.6 billion, or 68%, was attributed to improved commodity prices in 2021, while $19.6 billion is due to improvements in production compared to a year earlier.
Obviously, the production improvement will vary considerably across the U.S., depending on drought conditions, swine diseases and other factors.
Total farm production expenses in 2021 are estimated at $383.5 billion, which is an increase of $26.1 billion, or 7.3%, from a year earlier. The 2021 total inflation-adjusted farm expenses would be the highest since 2016, but would be below the record total farm expense level in 2014. Major factors in the higher farm-level expenses included increases in costs for livestock feed, seed, fertilizer, fuel, labor, land rent and property taxes.
The only projected decline for 2021 was for crop pesticide expense.
One large adjustment in 2021 was the gross receipts from direct government farm program payments. After reaching a record high of $45.7 billion in 2020, direct farm program payments declined by $17.7 billion, or 38.8%, and are now projected to end at $28 billion for 2021. Direct government payments to farmers for 2021 are listed as the following:
- Pandemic Assistance for Producers (PAP) payments and the former Coronavirus Food Assistance Program (CFAP) payments are forecast at $9.3 billion for 2021, compared to $23.5 billion in 2020.
- Paycheck Protection Program (PPP) loan payments to farmers are expected to increase slightly in 2021, estimated at $8.7 billion for the current year compared to $6 billion in 2020. Most PPP loans to farmers are expected to be forgiven, which is why they are included in the direct payments.
- The traditional farm program payments under the 2018 Farm Bill are expected to total $6.7 million for the Ag Risk Coverage (ARC) program and $2.2 billion for the Price Loss Coverage (PLC) program for 2021, which is a decrease of $1.3 billion for ARC and $2.7 billion for PLC from 2020 payment levels. The 2021 payments were based on the 2020 crop year, and the decline was largely due to increased prices for corn, soybeans and wheat and fairly good crop yields in 2020.
Even though the total level of gross farm receipts from direct farm program payments ($28 billion) declined considerably from 2020, it was still the second highest total in the past ten years (2012-2021). The direct farm program payments accounted for approximately 25% of the total net farm income in 2021, which was down from the government payments making up nearly half (49%) of the net farm income in 2020.
In the seven years prior to 2019 (2012-2018), direct farm program payments averaged $11.4 billion per year, representing an average only about 13.7% of total net farm income.
2021 U.S. net farm income summary
The 2021 U.S. net farm income projections show some very strong improvement compared to 2020 farm income levels and are considerably higher than farm income levels from 2014-2019.
The improvement in 2021 net farm income levels was largely due to improved commodity prices for crops and livestock, as well as some improvement in production levels and continued government farm program support. By comparison, in 2020 the improvement in net farm income from previous years was almost totally driven by record high levels of government farm program payments.
Grain prices were sharply higher in 2021 due to strong export sales to China and other countries, along with a trend to more normal domestic usage of grains for feed and processing, following the trade and industrial disruptions caused by the COVID-19 pandemic in 2020.
There are certainly some reasons for optimism in net farm income and profitability levels revealed in the latest USDA 2021 farm income report for the U.S. farm sector; however, it will be interesting how sustainable the improved farm income levels are in 2022 and beyond.
Most likely, crop input costs for fertilizer, seed, fuel and other inputs will increase significantly in 2022, along with increases in land rental rates in most areas. Government farm program payment levels are also likely to decline again in 2022. This combination will result in higher breakeven price levels for corn and soybean production next year.
A big key going forward will be maintaining the strength in crop and livestock prices that resulted in 2021 due to the improved U.S. export markets to China and other countries. Of course, weather is always a big “wild card” in final U.S. net farm income figures from year-to-year and will be again in 2022.
For additional information contact Kent Thiesse, farm management analyst and senior vice president, MinnStar Bank, Lake Crystal, Minn., at (507) 381-7960 or email@example.com, or visit www.minnstarbank.com.