Mixed News in Farm Income Projections
First, the bad news… the latest projections from the Bureau of Business Research (BBR) at the University of Nebraska-Lincoln (UNL) show net farm income in Nebraska for 2020 will decline 23 percent compared to last year.
Now, the good news… the estimate of net farm income for 2019 was revised upward to $3.80 billion, an increase of $1.1 billion, or 44 percent, over 2018. This two-year history demonstrates the income swings inherent in production agriculture. Since 2015, annual changes in net farm income have ranged from a 41 percent decline to a 44 percent increase. Dr. Brad Lubben, an agricultural economist at UNL, who develops the BBR farm income projections cites several causes for the projected reversal in farm fortunes this year. Lubben says, “Commodity price declines amid multiple concerns, including COVID-19 impacts on anticipated growth in trade and long-run consumer demand as well as concerns about energy market impacts on ethanol and corn demand” are weighing on the farm economy.
Obviously, given the present economic circumstances, there is a great deal of uncertainty surrounding the latest farm income projections. The duration and magnitude of the effects of the COVID-19 pandemic on the economy are unknown and will dictate the nature and speed of the recovery. Exports are another key variable. How much will the shrinkage in world economic growth impact world trade? And, will China abide by its purchase agreements signed earlier this year? The pace at which Americans resume travel and gasoline demand improves will determine how quickly ethanol plants in the state ramp up production. Whether, and how quickly, packing facilities return to pre-COVID operating capacities will play a key role for the livestock sector. Farm program payments and other forms of federal financial assistance will play a role. According to Lubben, government payments could comprise more than 50 percent of farm income in 2020. Finally, Lubben notes the Costco project in Fremont as another factor for Nebraska net farm income. The project should provide additional economic activity, but it is difficult to know just what the impact on farm income will be.
Farmers and ranchers already deal with a tremendous amount of uncertainty from year-to-year as the recent history of net farm income demonstrates. Managing income variability is a challenge but is nothing new for farmers and ranchers. However, the COIVD-19 pandemic has greatly amplified the uncertainty.
Figure 1. Nebraska Net Farm Income, 2000-2020
Source: NEFB chart; data from USDA Economic Research Service for 2000-2018; UNL Bureau of Business Research projections for 2019-2020.