2020 Farm Sector Income Forecast
Net cash farm income is forecast to decrease $10.9 billion (9.0 percent) to $109.6 billion in 2020, relative to the 2019 forecast. Net farm income, a broader measure of profits, is forecast to increase $3.1 billion (3.3 percent) from 2019 to $96.7 billion in 2020. The divergence in annual changes between the two measures of net income is because the net cash farm income forecasts include $14.7 billion in cash receipts from the sale of crop inventories in 2019 and $0.5 billion in 2020, contributing to the 2020 decline in net cash farm income. Net farm income excludes those sales from inventories as it measures production in the year in which it occurred, not the year in which it was sold.
In inflation-adjusted 2020 dollars, net cash farm income is forecast to decrease $13.1 billion (10.7 percent) and net farm income is forecast to increase $1.4 billion (1.4 percent). If realized, inflation-adjusted net cash farm income would be below its historical average across 2000-18 and net farm income would be above its historical average across 2000-18.
[In the text below, year-to-year changes in the major aggregate components of farm income are discussed only in nominal dollars unless the direction of the change is reversed when looking at the component in inflation-adjusted dollars.]
- Overall, farm cash receipts are forecast to increase $10.1 billion (2.7 percent) to $384.4 billion in 2020. Total animal/animal product receipts are expected to increase $8.2 billion (4.6 percent) following growth in receipts for hogs, milk, cattle/calves, and poultry/eggs. Total crop receipts are expected to increase $1.9 billion (1.0 percent) from 2019 levels. Fruit/nuts and corn are forecast to increase the most among crop receipts that are forecast higher, while receipts for soybeans are forecast lower. When adjusted for inflation, total crop cash receipts are forecast to decline $1.7 billion (0.9 percent).
- Direct government farm payments—which include Federal farm program payments paid directly to farmers and ranchers but exclude USDA loans and insurance indemnity payments made by the Federal Crop Insurance Corporation—are forecast to decrease $8.7 billion (36.7 percent) to $15.0 billion in 2020, following an expected decline in payments from the Market Facilitation Program.
- Total production expenses, including expenses associated with operator dwellings, are forecast to increase $10.4 billion (3.0 percent) in 2020 to $354.7 billion following increases for most categories of expenses. In particular, feed expenses are forecast to increase $3.2 billion (5.8 percent) and hired labor expenses to increase $2.0 billion (6.9 percent). However, interest expenses are forecast to decline $1.4 billion (7.0 percent) in 2020.
- Farm sector equity is expected to increase by 1.1 percent to $2.70 trillion in nominal terms. Farm sector assets are forecast to increase 1.3 percent in 2020 to $3.13 trillion as farm real estate assets are forecast to increase 1.4 percent. Farm sector debt is forecast to rise 2.3 percent to $425.3 billion, with real estate debt forecast to rise 3.2 percent to $264.7 billion. When adjusted for inflation, farm sector equity and assets are forecast to decline in 2020. Debt-to-asset levels for the sector are forecast to rise again in 2020, continuing an annual upward trend that began in 2014. Working capital is forecast to decline an additional 15.0 percent in 2020, after declining 12.7 percent in 2019.
Crop Receipts Expected To Be Relatively Flat in 2020
Crop cash receipts are forecast to be $198.6 billion in 2020, increasing $1.9 billion (1.0 percent) from 2019 in nominal terms, but after adjusting for inflation, crop receipts are expected to fall $1.7 billion (0.9 percent). Sectors expected to see growth in cash receipts in 2020 include hay, corn, and fruits and nuts, offset by lower receipts for soybeans and vegetables and melons.
Soybean receipts in 2020 are expected to decrease $0.9 billion (2.5 percent) in nominal terms, as lower quantities should outweigh positive price effects. Corn receipts are expected to rise by $1.0 billion (2.1 percent) in 2020 relative to 2019. The corn receipts forecast is driven by opposing effects in 2020 from expected lower prices but higher quantities sold. The increase ($0.1 billion or 2.1 percent) in 2020 cotton receipts reflects expected increases in receipts for cotton lint overall as well as cottonseed. Wheat receipts are forecast to increase $0.1 billion (1.0 percent) because of forecasted slight increases in both price and quantity. Hay receipts are forecast to increase $0.3 billion (3.2 percent) in 2020, resulting from expected higher prices and quantities sold.
Vegetable and melon cash receipts are expected to fall $0.4 billion (1.8 percent) in nominal terms in 2020. Cash receipts for fruits and nuts are expected to rise $1.8 billion (6.3 percent) in 2020.
Animal/Animal Product Receipts Forecast To Grow in 2020
Total animal/animal product cash receipts are expected to rise $8.2 billion (4.6 percent) to $185.8 billion in 2020 in nominal terms. After adjusting for inflation, the forecast gain in cash receipts is $4.9 billion (2.7 percent). Hogs and milk are expected to lead growth in receipts for animal/animal products.
Milk receipts are expected to increase $2.1 billion (5.2 percent) in 2020 in nominal terms, reflecting both higher prices and quantities sold. Cash receipts from cattle and calves are expected to increase $1.1 billion (1.6 percent), also because of slightly higher price and quantity forecasts in 2020. Hog cash receipts are expected to increase $4.2 billion (18.4 percent) in 2020, reflecting a rise in both price and quantities of hogs sold.
Broiler receipts are expected to increase $0.3 billion (1.0 percent) in 2020, owing to higher quantities sold. Cash receipts for chicken eggs are expected to grow $0.2 billion (2.7 percent) in 2020, reflecting growth in prices and quantities sold. Turkey receipts are expected to increase $0.2 billion (4.5 percent) in 2020, also because of price and quantity growth.
Growth in Prices and Quantities Sold Drive Growth in Cash Receipts in 2020
To better understand the factors that affect the forecast change in annual receipts from 2019 to 2020, we separate the change into two effects: (1) a "price effect" where we project the change in cash receipts associated with holding the quantity sold constant at 2019 levels and allowing prices to change to forecast 2020 levels, and (2) a "quantity effect" where prices are held constant from 2019 and quantities change to forecast 2020 levels. Overall, increases in both prices and quantities are forecast to positively affect cash receipts in 2020, but higher quantities are expected to have the larger effect of the two. Cash receipts are forecast to increase $10.1 billion in 2020, with higher quantities sold accounting for $5.3 billion of the total increase and higher prices accounting for $4.2 billion. $0.6 billion of this increase is for commodities whose price and quantity effects cannot be separately determined. Price and quantity effects are different for crop versus livestock commodities; animals/animal products are forecast to see both positive price and quantity effects in 2020, while crop cash receipts will only rise because of quantity effects, as price effects will be negative overall.
Direct Government Farm Payments Forecast To Decrease in 2020
Direct government farm program payments are those made directly by the Federal Government to farmers and ranchers without any intermediaries. Government payment amounts do not include Federal Crop Insurance Corporation insurance indemnity payments (listed as a separate component of farm income) or USDA loans (listed as a liability in the farm sector’s balance sheet). Direct government farm program payments are forecast to decrease 36.7 percent ($8.7 billion) from 2019 to 2020 (see table on government payments by program). This overall decrease reflects lower anticipated payments from the Market Facilitation Program.
- Payments are projected for the Market Facilitation Program to help farmers in response to trade disruptions. The 2020 forecast, reflecting payments authorized in 2019, are expected to be $10.6 billion lower than those received in 2019. We assume producers will receive 25 percent of the announced 2019 payment total of $14.5 billion.
- Payments in calendar year 2020 under the Agriculture Risk Coverage (ARC) program are expected to decline $0.7 billion from 2019 levels while Price Loss Coverage (PLC) payments in 2020 are expected to increase ($1.5 billion) from 2019 levels. Under the 2018 Farm Bill, producers may change their program election (ARC or PLC) for their farms for crop year 2019 compared with the prior election for the farm under the 2014 Farm Bill. Many farmers are expected to switch their enrollment from ARC to PLC because declines in market prices are expected to trigger PLC payments for some crops but not trigger ARC payments which are based on historic revenue.
- Conservation payments from financial assistance programs of USDA's Farm Service Agency and Natural Resources Conservation Service are expected to rise to $4.2 billion in 2020, up 4.4 percent from 2019.
- The Dairy Margin Coverage Program, which replaced the Dairy Margin Protection Program in the 2018 Farm Act, is forecast to make net payments of $0.6 billion to dairy operators in 2020.
- Supplemental and ad hoc disaster assistance payments in 2020 are forecast to increase $0.3 billion (14.2 percent) from 2019 to $2.5 billion. Most payments come from the Wildfire and Hurricane Indemnity Program (WHIP+) enacted through the Disaster Relief Act of June 2019.
Production Expenses Forecast to Increase in 2020
Farm sector production expenses (including expenses associated with operator dwellings) are forecast to increase by $10.4 billion (3.0 percent) in 2020 in nominal terms. Forecast at $354.7 billion, 2020 production expenses are 18 percent below the record high of $431.9 billion in 2014, in inflation-adjusted terms. Nearly all categories of production expenses are expected to increase in 2020 in nominal terms. However, interest expenses are forecast to decrease 7.0 percent from 2019.
See data tables on production expenses.
- Feed purchases, the largest single expense category, are forecast to increase 5.8 percent (to $59.6 billion) in 2020.
- The second largest line item, cash labor expenses, are also forecast to increase in 2020 by 5.3 percent (to $38.0 billion). Wage rate increases are expected to put upward pressure on hired labor costs.
- Seed and pesticide expenses are each forecast to increase 2.5 percent in nominal terms to $20.7 billion and $15.0 billion respectively. Fertilizer, lime, and soil conditioners expenses are forecast to increase 5.0 percent. These increases are largely based on a forecast increase in planted acres for the principal crops in 2020.
- Interest expenses (including operator dwellings) are expected to decline, down 7.0 percent to $18.0 billion. This decrease is the result of an expected decline in interest rates.
- Spending on oils and fuel is expected to increase by 5.9 percent to $12.7 billion. This is driven in part by the U.S. Energy Information Agency's January forecast of higher diesel prices (up by 5 cents per gallon) in 2020.