Huge federal payments will make up 36% of farm income this year

The government will send a record $32.8 billion in direct payments to farmers this year, but the economic slowdown triggered by the coronavirus still will pull down farm income by 3%, said the FAPRI think tank at the University of Missouri on Tuesday. Federal supports would amount to 36% of farm income, its largest share since 2001.

Trade war and coronavirus relief payments would account for the bulk of the payments. Both are temporary programs, ending this year. After dipping to $90.6 billion this year, farm income would fall by 21% in 2021, to $79.4 billion, “given current market conditions and the assumption of no new government payment programs,” said the Food and Agricultural Policy Research Institute in updating its agricultural baseline. The think tank said current conditions indicate China will not satisfy its Phase One agreement to buy vastly larger amounts of U.S. farm exports.

The USDA will have access to $14 billion in additional funds after it submits a June 30 financial statement for the Commodity Credit Crop, its conduit for spending, “so USDA could announce another program if it chooses to,” said FAPRI Director Pat Westhoff. Farm groups have said the $16 billion in coronavirus payments now being made to producers will be insufficient to buffer the economic downturn. Agriculture Secretary Sonny Perdue has said he expects more money will be needed.

According to FAPRI, the coronavirus pandemic will end the slow farm-sector recovery from the collapse of the commodity boom early this decade. USDA data say that net farm income, a commonly used gauge of the financial health of the sector, bottomed at $62.3 billion in 2016, half of its crest of $123.7 billion in 2013. The USDA forecast farm income of $96.7 billion this year, up from $93.6 billion in 2019. The USDA estimate was made before the coronavirus struck; an update is scheduled for September 2.

“All signs point to direct payments in 2020 approaching record levels,” wrote economist David Widmar at the Agricultural Economic Insights blog this week. He estimated direct payments of $31 billion this year. On June 3, FERN said payments were headed for a record and could exceed $30 billion this year.

“The possibility of direct payments hitting — or even exceeding — historic highs underscores the challenges facing an already precarious farm economy,” said Widmar. Farm debt is near record levels, when adjusted for inflation, and the debt-to-cash ratio is rising although low compared to the agricultural recession of the 1980s, the hardest times in recent decades. Direct federal payments were 65% of farm income in 1983.

The recent highs were 41% in 2001 and 46% in 2000.

“The outbreak of COVID-19, as well as U.S. government response to the outbreak, continues to impact agricultural markets, disrupting supply chains, shifting consumer demand, and expanding government outlays,” said FAPRI in its updated baseline, based on conditions in early June. “Thus, (the baseline) includes $16 billion in Coronavirus Food Assistance Program (CFAP) payments in 2020, but does not assume any additional programs that might be created.”

Farm-gate prices for this year’s corn crop, expected to be a record 15.5 billion bushels, will average $3.06 a bushel, lowest since the 2006 crop, said FAPRI. This year’s soybean crop would sell for an average $8.21 a bushel, also the lowest since the 2006 crop, and fall to $8 for the 2021 crop. The think tank estimates that corn plantings will be 1 million acres smaller, and soybean plantings will be 1 million acres larger than USDA estimated in March.

“After several years of strong growth, total per-capita consumption of beef, pork, and poultry consumption is projected to decline in 2020 as the COVID-19 crisis pushes up retail prices and reduces consumer disposable income,” said FAPRI. Americans will consume 220.8 pounds of meat and poultry this year, it estimated, compared to USDA’s 217.1 pounds. It said beef and pork production will be larger than USDA projected in May although lower than expected before the pandemic.

“U.S. pork export growth in 2020 offers price support, with much of the growth in exports headed for China.” Nonetheless, steer and hog prices are down “largely because of COVID-19-related food service slowdowns and packing plant closures.”

Produced with FERN, non-profit reporting on food, agriculture, and environmental health.
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