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Record subsidies but weaker ag sector during pandemic year

Farmers faced higher expenses and earned less money from their crops and livestock than initially expected in 2020, due to market disruptions caused by the pandemic, said a USDA COVID-19 working paper. By many standards, such as debt-to-asset ratio, the financial strength of the sector softened in 2020, despite $45.7 billion in federal subsidies — the largest ever — said USDA economists.

“All solvency, liquidity, and profitability ratios were weaker than average. This finding suggests worse than average financial performance for the farm sector as a whole in 2020,” said the Economic Research Service. “However, net farm income in 2020 is higher than average over the past 20 years when the series is adjusted for inflation.”

The debt-to-asset and equity-to-asset ratios, indicators of farm financial health, climbed in 2020 as farmers took on more debt. The ratios have been on a slow rise since 2012, when the commodity boom crested, but are not at burdensome levels. Agricultural production was worth $355 billion in 2020, or nearly 7% less than expected, mostly because of “supply chain disruptions and changes in global demand for meat and poultry due to the pandemic,” said the paper.

“However, the decrease (or downward revision) was completely offset by the increase in government payments from COVID-19 assistance,” said the paper’s four authors. The $45.7 billion in supports was a record in both current-dollar and inflation-adjusted terms and was three times larger than the USDA forecast in February 2020, a month before the coronavirus swept the United States.

Net farm income, a measure of profitability, was $95.2 billion in 2020, the highest in seven years, but that was $1.5 billion lower than the USDA’s first forecast of the year. Profitability ratios for the year were mixed, said the working paper. Any improvements were largely the result of record government payments. “Even after improvement in 2020, all ratios were still weaker than the 20-year average.”

In February, the USDA forecast net farm income at $113.7 billion this year, a decline from $119.1 billion last year. In either case, income would be far higher than the 10-year annual average of $90 billion. The ERS is scheduled to update its forecast of farm income next Thursday.

The Covid-19 working paper is available here.

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