The U.S. Department of Agriculture’s crystal ball is a little hazy on 2020 farm profitability. By one gauge, U.S. agriculture will make more money in 2020 than it did in 2019. By another, the U.S. ag sector will make less, a new government report finds.
“Our profitability measures for 2020 are actually mixed,” said Carrie Litkowski, an economist with USDA’s Economic Research Service, or ERS.
The agency on Wednesday, Feb. 5, released its 2020 Farm Income Forecast. Key findings of the report, which Litkowski provided during an online presentation to the news media, include the following:
2020 net farm income is estimated at $96.7 billion, up 3.3% from 2019.
2020 net cash farm income is pegged at $109.6 billion, down 9% from 2019, with parts of the Upper Midwest suffering a greater decline.
Both 2020 projections are near their 2000-2018 average, a period that has included wide swings in farm profitability.
Though not normally the case, “it’s not completely unheard of” for annual net cash farm and net farm income projections to vary as the 2020 estimates do, Litkowski said.
Net cash farm income includes 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.
Net cash farm income is expected to decline in 2020, in part, because farmers are projected to receive less in direct government payments than they did in 2019. Net farm income, in turn, is expected to increase this year because farmers are projected to have greater receipts from sales of crops and livestock.
The projected net cash farm income national average masks significant differences among different parts of the country.
The Upper Midwest, primarily North Dakota, South Dakota and eastern Montana, will see a 16% drop, nearly twice as much as the national average. That reflects the relative importance of direct government payments in the area, Litkowski said.
A 74.2% decline in projected Market Facilitation Program payments in 2020 more than offsets projected increases in other types of direct payments, which overall will see a 36.7% decline this year, the report predicted.
In contrast, Minnesota and parts of South Dakota and Iowa will see a decline of 6% to 8% in net cash farm income, which is better than the projected 9% average decline nationally. That reflects what’s projected to be increased receipts from dairy and hog sales, according to the ERS report.
The ERS report also predicted that 2020 production expenses will rise in all categories except for interest expense, which will drop an estimated 7% due to lower interest rates. Spending on fuel and oil will rise an estimated 5.9%, with spending on fertilizer increasing 5%.
Balance sheet says …
The report also projected U.S.’s collective balance sheet, which by historical standards remains strong. Even so, ERS predicts “growing signs of stress” in 2020, with farm equity pegged to fall an inflation-adjusted 0.7%, the value of farm-related assets declining by an inflation-adjusted 0.6% and farm debt rising by an inflation-adjusted 0.5% .
The Economic Research Service’s mission “is to anticipate trends and emerging issues in agriculture, food, the environment and rural America, and to conduct high-quality, objective economic research to inform and enhance public and private decision making.”
As part of that mission, the ERS releases annual farm income statement and balance sheet estimates and forecasts in February, August and November.
The Feb. 5 forecast, the first to be issued for 2020, will be updated in August and November.