Record-high ag subsidies to supply 39% of farm income

Despite the effects of the pandemic and the trade war, U.S. farm income this year will be the highest since 2013 because of the largest federal payments ever — $46.5 billion, triple the usual amount, the government said on Wednesday. Think tank analysts said farm income would fall in 2021 with the expiration of Trump-era bailouts, but the drop-off will be lessened by the ongoing rally in commodity prices and increased ag exports.

"Given these new farm income numbers, it is hard to make a case for more supplemental monies going to the sector," said former USDA chief economist Joe Glauber, now at the IFPRI think tank. "Far better to put it towards those who need it more, like SNAP recipients."

Pat Westhoff, director of the FAPRI think tank, said farm income was certain to fall next year without large stopgap assistance. "However, with commodity markets stronger than we expected back in August, I'd expect the level of net farm income to be higher in 2021 than we previously projected," which was $82.2 billion. Westhoff calculated that the U.S. corn and soybean crops are worth $16 billion more than in August, with China returning to the U.S. market.

Government payments will account for 39% of net farm income this year, the largest share of income since 41% in 2001. The highest share ever was 65 percent in 1983, during the worst of the farm recession, said USDA economist Carrie Litkowski.

"And total direct farm government payments are forecast to increase, or to be at their highest level ever in 2020," said Litkowski during a webinar. The estimated $46.5 billion in payments is nearly $10 billion larger than the USDA estimated on Sept. 2, due to the administration's decision to offer a second round of coronavirus payments to farmers. Trump announced the additional aid at a campaign rally in rural Wisconsin on Sept. 7.

The USDA estimates farmers will receive $24.3 billion in coronavirus payments this year, along with $5.9 billion in Payroll Protection Program loans, which will be forgiven in most cases; $3.7 billion in trade war payments; and $10 billion or so in traditional farm subsidies and land stewardship payments. In 2019, direct payments totaled $22.4 billion, less than half of this year's amount.

When $6 billion in indemnities from federally subsidized crop insurance programs are added to the direct payments, the government would be responsible for $52.5 billion, or 44%, of farm income this year. Crop insurance, however, is not considered a direct payment.

Besides larger federal payments, the USDA raised its estimate of crop and livestock receipts by $8.2 billion from the September forecast. Farmers held on to a bit more money by paring their expenses, which aided the income picture.

Net income of $119.6 billion this year would be well above the average of $77 billion in the preceding five years. Farm income was a record $123.7 billion in 2013 at the crest of the commodity boom.

Farm assets, mostly real estate, were forecast to rise modestly this year, to $3.12 trillion, while farm debt would rise by 4%, to $435 billion. The debt-to-asset ratio, on the rise since 2012, would increase to 13.95% this year, up from 13.61% in 2019. Still, the ratio would be relatively low, so the risk of agricultural defaults also would remain low, said Litkowski. The farm bankruptcy rate of 3 per 10,000 farms was expected to fall slightly this year.

Some $14 billion was offered to producers in the second round of coronavirus aid. The USDA estimated that $13.3 billion of it would be paid by the end of this year, meaning little would spill over as payments in the new year. The deadline to apply for aid is Dec. 11. As of Monday, $11.1 billion had been paid in the second round and $10.5 billion in the first round.

The USDA will make its first forecast of 2021 income on Feb. 5 and also update its estimate for 2020.

The USDA farm income forecast is available here.