LegiStorm

Summary:

This report uses the U.S. Department of Agriculture's (USDA) farm income projections (as of February 5, 2020) to describe the U.S. farm economic outlook for 2020. Two major indicators of U.S. farm well-being are net farm income and net cash income. Net farm income represents an accrual of the value of all goods and serviced produced on the farm during the year—similar in concept to gross domestic product. In contrast, net cash income uses a cash flow concept to measure farm well-being: Only cash transactions for the year are included. Thus, crop production is recorded as net farm income immediately after harvest, whereas net cash income records a crop's value only after it has been sold in the marketplace. According to USDA's Economic Research Service (ERS), national net farm income is forecast at $96.7 billion in 2020, up $3.1 billion (+3.3%) from 2019. The forecast rise in 2020 net farm income stands in contrast with a projected decline of over $10.8 billion in net cash income (-9.0%). Last year's (2019) net cash income forecast included $14.7 billion in sales of on-farm crop inventories, which helped to inflate the 2019 net cash income value to $120.4 billion. The 2020 net cash income forecast includes a much smaller amount ($0.5 billion) in sales from on-farm inventories, thus contributing to the decline from 2019. Government direct support payments to the agricultural sector are expected to continue to play an important role in farm income projections. USDA projects $15 billion in farm support outlays for 2020, including the $3.7 billion of 2019 Market Facilitation Program (MFP) payments—the third and final tranche of payments under the $14.5 billion program. If realized, the 2020 government payments of $15 billion would represent a 36.6% decline from 2019 but would still be the second largest since 2006. The $23.6 billion in federal payments in 2019 was the largest taxpayer transfer to the agriculture sector (in absolute dollars) since 2005. The surge in federal subsidies in 2019 was driven by large payments (estimated at $14.3 billion) under the MFP initiated by USDA in response to the U.S.-China trade dispute. The Administration has not announced a new MFP for 2020. Weather conditions and planting prospects for 2020 are unknown this early in the year. Commodity prices are under pressure from abundant global supplies and uncertain export prospects. Despite the signing of a Phase I trade agreement with China on January 15, 2020, it is unclear how soon—if at all—the United States may resume normal trade with China or how international demand may evolve in 2020. Farm asset value in 2020 is projected up year-to-year at $3.1 trillion (+1.3%). Farm asset values reflect farm investors' and lenders' expectations about long-term profitability of farm sector investments. Another critical measure of the farm sector's well-being is aggregate farm debt, which is projected to be at a record $425.3 billion in 2020—up 2.3% from 2019. Both the debt-to-asset and the debt-to-equity ratios have risen for eight consecutive years, potentially suggesting a continued slow erosion of the U.S. farm sector's financial situation. At the farm household level, average farm household incomes have been well above average U.S. household incomes since the late 1990s. However, this advantage derives primarily from off-farm income as a share of farm household total income. Since 2014, over half of U.S. farm operations have had negative income from their agricultural operations. USDA Farm Income Projections as of February 5, 2020 This report discusses aggregate national net farm income projections for calendar year 2020 as forecast by ERS on February 5, 2020. It is the first of three ERS forecasts for 2020: The second farm income forecast is expected on September 2, 2020, and the third is expected in November.