Government Payouts To Make Up 36% Of Farm Income

Thanks to a perfect storm of negative factors this year, farmers are having to rely on greater numbers of government payouts. However, despite the $32.8 billion in direct aide, farm income is still going to drop by 3% for 2020 according to a new report from the University of Missouri’s Food and Agricultural Policy Research Institute (FAPRI). Federal supports would total 36% of farm income, its largest share since 2001.

Trade war and coronavirus relief payments would account for the bulk of the payments, however, both are temporary programs and will end this year. 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. Farm groups believe this might be needed as the funds set aside for COVID-19 payments will be insufficient to buffer the economic downturn.

Livestock producers have received a majority of the $16 billion Coronavirus Food Assistance Program (CFAP) funds at around $676 million with row crop growers and dairy farmers, each receiving more than $300 million. Specialty producers of crops such as fruits, nuts and vegetables saw less than $25 million. A bulk of the payments have gone to the Midwest states of Iowa, Nebraska, Illinois and Kansas.

The FAPRI report estimates that 2020 net cash farm income will drop by 15% to $102.2 billion, down from $120.4 billion last year even after taking into account income received from CFAP. The group points to slumping commodity prices and the overall economic slowdown as the primary reason for the drop. Net cash income is projected down sharply again in 2021 down to $95.1 billion.

A more expansive marker of the farm economy — net farm income — is expected to decline from $93.6 billion in 2019 to $90.6 billion this year with further drops to $79.4 billion in 2021. Net cash farm income is based on cash receipts from farming, in addition to any government payments along with other farm-related income, minus cash expenses. Net farm income also factors in non-cash items such as changes in inventories and depreciation. As a result, net cash farm income is considered the better measure of farmers’ cash flow.

“All signs point to direct payments in 2020 approaching record levels…The possibility of direct payments hitting — or even exceeding — historic highs underscores the challenges facing an already precarious farm economy,” wrote economist David Widmar in the Agricultural Economic Insights blog. Widmar estimated total direct payments of $31 billion this year. On June 3, the Food and Environment Reporting Network said payments were headed for a record and could exceed $30 billion.

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 equalled 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 payments in 2020, but does not assume any additional programs that might be created.”

According to the report, 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. This year’s soybean crop would sell for an average $8.21 a bushel, also the lowest since the 2006 crop, and drop to $8 for the 2021 crop. FAPRI believes that corn plantings will be a million acres smaller, with soybean plantings a million acres more than the USDA estimated in March.

However, seeing CFAP payouts they perceive biased, a bipartisan group of House members sent a letter to USDA Secretary Sonny Perdue on Tuesday highlighting their concerns. House Agriculture chairman Collin Peterson (D-Mn), along with three subcommittee chairs, said they had issues such as the fact that there were limited staff in Farm Service Agency county offices to assist producers who wished to enroll in CFAP, an “arbitrary” timeline for measuring livestock losses, as well as a failure to “recognize the cost premium of organic crops” or livestock raised for higher value markets such grass-fed beef.

This year is also a time which has seen record bankruptcies. In a 12-month period ending in September 2019, Chapter 12 farm or fishery bankruptcies totaled 580 filings, up 24% from a year earlier and the most since 2011, when 676 chapter 12 bankruptcies were filed.