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Farm income, stressed this year, may drop sharply in 2021
U.S. farm income, under pressure this year from the trade war and coronavirus pandemic, could fall off a cliff next year when record-setting federal payments are due to end. The plunge in income could be avoided by cost-cutting on the farm, a recovery in commodity demand, or a new multibillion-dollar round of federal aid, but those are far from assured, say analysts in early assessments.
The outlook for 2021 has gotten little attention amid this year’s dramatic upheavals and calls for immediate aid. Few estimates have been made for the coming year. The FAPRI think tank at the University of Missouri says farm income would drop by 12% next year if commodity prices remain low and there is no new stopgap farm aid program.
Corn and soybean growers in the Midwest will receive payments worth $80 an acre this year to mitigate the impact of the trade war and the pandemic, estimated five university economists. They payments are equal to 10% to 12% of gross revenue per acre. “Without additional aid in 2021, corn and soybean returns are projected negative,” said the economists at the farmdoc Daily blog.
“Whether this aid is forthcoming is a good question, particularly after the 2020 election,” they wrote. Corn and soybeans are the two most widely grown crops in the country, so the impact would be felt widely. “When this aid ends, farmers will need to make financial adjustments, and cash rents will need to fall if uses do not grow in the meantime. Farmers may wish to begin to prepare for this possibility, making changes in financial structure and cash rents currently.”
Farm income “has been pretty flat for a long time now,” influenced by large global crops that have kept prices in check, said Joe Glauber of the International Food Policy Research Institute think tank. With an agricultural recovery that included more exports to China, strong demand for corn ethanol, and full-volume production at meatpacking plants, farm income in 2021 could run at its long-term levels, “although that very well could be down significantly from 2020 if record payments are made this year.”
USDA economists say the long-term average for net farm income is $91.7 billion a year. Federal farm payments will be a record $32.8 billion this year, double the usual amount, based on outlays announced so far, estimated FAPRI. The USDA can gain access to an additional $14 billion as early as July so the total could grow.
Early this month, the USDA began disbursing coronavirus aid to farmers and ranchers from a $16 billion fund. As of Monday, $2.9 billion was paid to nearly 220,300 producers, an average of $13,143 each.
The coronavirus aid follows $23.5 billion in aid to producers to offset the impact of trade war on 2018 and 2019 crops and livestock. “Payment rates are larger than estimated price impacts of retaliatory tariffs for most commodities,” said Kansas State University economists Joseph Janzen and Nathan Hendricks in an analysis published in May. “While payments exceed the tariff‐related price impact in the short run, the program may not compensate for long‐run losses due to the trade conflict.”