Net Farm Income Projected Higher
John Newton, American Farm Bureau chief economist, wrote last week, “While farm profitability will certainly be higher in 2020, it’s a false positive.” Newton was reacting to the latest USDA Economic Research Service (ERS) estimates of U.S. net farm income for the year. The ERS projects a 43 percent increase this year, reaching nearly $120 billion, the highest since 2013 (Figure 1). In absolute dollars, the change equals a $36 billion upsurge from 2019.
Newton’s assessment alludes to the fact that the higher net farm income stems directly from a substantial increase in government payments and not underlying economic conditions on the farm. Figure 2 shows the contributions of several factors to changes in 2020 net farm income compared to 2019. The increase in government payments is estimated at $24 billion, a 107 percent increase over last year. This is due to the supplemental and ad hoc disaster assistance provided in response to COVID-19. Newton calculates government payments will account for 39 percent of net farm income nationwide.
Absent government payments, Newton estimates net farm income would total $73 billion, up $12 billion from last year. Higher commodity prices, boosting receipts and the value of inventory, and lower production expenses helped push farm income higher. These positives were offset by lower livestock receipts, projected to be $9.7 billion lower. Total farm receipts for the year are projected lower, 0.9 percent. Production expenses are estimated to be $5.2 billion, or 1.5 percent, less.
Nebraska net farm income should be higher this year as well, although the USDA will not release estimates of state level farm income until next year. Dr. Brad Lubben at the University of Nebraska estimated Nebraska net farm income this year could approach $6 billion, up from $4.2 billion in 2019. Like the nationwide figures, the increase in Nebraska is driven by government payments. Like Newton says, it’s a false positive.
Figure 1. Real & Inflation Adjusted U.S. Net Farm Income
Source: USDA, Economic Research Service, Farm Bureau Calculations
Figure 2. Contributions to 2020 Net Farm Income
Source: USDA, Economic Research Service, Farm Income and Wealth Statistics. Data as of December 2, 2020