Net farm income grows 23% per year due to high commodity prices

The USDA’s Economic Research Service released its 2021 agriculture sector income forecast this morning, offering its third projection of 2021 financial indicators for the U.S. farm economy. The 2021 forecast offers greater profit potential than in 2020, with several underlying trends to note.

Inflows pave the way for income gains

ERS forecasts net farm income for the 2021 calendar year at $ 116.8 billion, an increase of 23% over 2020 profits and the highest inflation-adjusted profit level since 2013. The forecast net farm income rose nearly $ 4 billion from the earlier 2021 forecast released by ERS in September. 2021 due in large part to the corn markets.

Carrie Litkowski, USDA-ERS Senior Economist and Farm Income Team Program Manager, cited updated corn production and price estimates for 2021/22 as well as revised data on the use of corn from the National Agricultural Statistics Service’s Quarterly Grain Stock Report as an aggravating reason for upward revisions in a webinar. reviewing three-year financial estimates.

The main driver of the rise in farm incomes from 2020 levels is largely due to the rise in commodity prices in 2021. The rise in crop prices added nearly $ 41 billion to 2021 profits. , while an additional $ 28 billion was added to the value of livestock receipts.

Litkowski took a deeper look at its cash receipts for calendar year 2021, observing that the amounts of crops and livestock sold in 2021 closely matched the volumes in 2020. Thus, price was the main driver of the increase in net farm income. in the Heartland.

“Essentially, all of the higher revenue is derived from the higher prices,” Litkowski said.

Indeed, corn prices in 2021/22 will be the highest since 2012/13 and soybean prices are expected to reach the second highest price on record for this year. High prices for broilers and pigs were the main contributors to the first annual increase in total receipts from animal products since 2017, although cash receipts from dairy products are expected to decline after inflation-related adjustments. .

Higher prices leading to an increase in total collections

Revenues from corn (+ 47%), wheat (+ 21%) and soybeans (+ 16%) account for the largest share of the increase in cash receipts from crops in 2021 compared to the previous year. While higher commodity prices led to gains for soybeans and wheat, higher volumes sold in addition to high prices propelled corn revenues to a staggering $ 71 billion in 2021, up from just under $ 50 million in 2020.

However, wheat has a chance of recording higher price and quantity gains for 2022 revenue. The ERS dataset only collects data until September 2021, so current high wheat prices – and the potentially higher acreage for next year – will likely not be reflected in the net farm income estimates until the 2022 projections are released in February 2022.

Relief from government payments to farmers in 2021

These gains came without the help of government payments, which are expected to drop 40% from 2020 levels to $ 27 billion. Last year, the Market Facilitation Program, Paycheck Protection Program, and COVID-19 pandemic relief payments accounted for 48% ($ 46 billion) of U.S. net farm income. United.

Total government direct payments to farmers are expected to decline in 2021. Chart of payments by type and year.

As the pandemic drew to a close this year and with the end of MFP payments, only $ 27 billion in federal direct farm program payments were issued, with the lion’s share being distributed through COVID-19 relief programs. That figure represents 23% of U.S. net farm income in 2021.

Government payments to farmers have been closely watched in recent years, and with good reason. Prior to 2018, government payments only contributed an average of 18% to the net incomes of U.S. farmers. Litkowski warned that further revisions are possible for 2021 government payments to farmers, as loan cancellation requirements are finalized at the end of the year.

Litkowski also noted that ARC / PLC payments to farmers will likely be nominal this year due to profitable commodity prices and does not expect more MFP payments in the future. An increase in dairy margin cover payments in 2021 was more than offset by low ARC / PLC total losses.

Additional Pain Points for Profits

Rising production costs have also eroded the profit margins of farms in the United States this year. The latest ERS estimates see rising costs for fuel, raw materials, production and logistics as the main drivers behind the nearly $ 30 million increase in production spending between 2020 and 2021.

Total production spending is expected to increase in 2021

Keep in mind that the ERS calculations also take into account prepaid input purchases in 2022 booked in 2021. And today’s data has been compiled from data collected in September 2021. So, Although these numbers are represented in this current dataset, ongoing supply chain issues and rising fuel costs that drop could further tighten profit margins in 2021 and increase agricultural production costs in 2022.

Even with the reduction in government checks and rising costs, farmers still saw their net farm cash income increase by 11% from 2020, while net farm income increased by 19% over the same period. period. The differences between the two measures are largely due to differences in timing and accounting.

Overall, the agricultural financial outlook is broadly positive for the US agricultural economy. Despite volatile markets and turbulent economic conditions, farmers are poised to end 2021 on a high note due in large part to high commodity prices. Take advantage of the margins now, as 2022 is likely to bring higher expenses and increased potential for lower commodity prices based on current forward price differentials.

For the latest data released by the USDA-ERS on agricultural sector income and finance, Click here.

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