USDA-Higher Incomes Ahead
USDA expects net farm income to increase 3.3% from 2019 to $96.7 billion in 2020.
In the first forecast for 2020, the agency’s Economic Research Service called for higher cash receipts, a sharp decline in direct government payments as the Market Facilitation Program winds down and continued erosion of working capital as debt-to-asset ratios grow for the sixth consecutive year.
The report started with a schooling in the difference between net farm income and net cash farm income. Generally, the two measures of farm profitability track together, but they diverged in Wednesday’s reports.
While net farm income was higher, net cash income for 2020 was forecast to be down 9% to 109.6 billion. “The divergence between the two measures in the 2020 forecasts is largely caused by how net sales from inventories are treated,” USDA said in a summary of the report.
Net cash farm income records income in the year the sale occurred, while net farm income counts it in the year the production occurred. High net sales ($14.7 billion) from crop inventories forecast in 2019 are expected to boost net cash farm income significantly that year. Very low net sales from inventories ($0.5 billion) in 2020 are expected to contribute to a decrease in net cash farm income between the two years.
USDA anticipates farm cash receipts will increase 2.7% to $384.4 billion in 2020, with livestock and animal product receipts growing 4.6% year-over-year. Crop receipts are expected to grow 1%. Corn receipts are expected to make up a large part of that increase, with USDA forecasting a larger quantity of corn being sold, albeit at a lower price. Soybean receipts are expected to decline. Hog and milk sales are expected to be strong contributors to farm income in 2020, with milk receipts forecast up 5.2% and hog receipts up 18.4%, both reflecting higher prices and higher quantities sold.
Direct government payments, which do not include crop insurance indemnity payments or USDA loans, are forecast to fall 36.7% from 2019 to 2020. The forecast reflects Market Facilitation Program payments authorized for the 2019 crop year and paid in 2020. USDA also expects payments in calendar year 2020 for the Agriculture Risk Coverage (ARC) program to decline $0.7 billion while payments under the Price Loss Coverage (PLC) program are expected to increase $1.5 billion.
“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,” USDA stated.
Debt is expected to grow faster than farm equity in 2020, with USDA expecting debt to rise 2.3% while assets are only expected to grow 1.3%. Debt-to-asset levels for the agricultural sector are set to rise for the sixth consecutive year, while working capital is forecast to decline an additional 15% in 2020, after declining 12.7% the previous year.
Katie Dehlinger can be reached at [email protected]
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Source: Katie Dehlinger, DTN