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Government payments responsible for higher 2019 farm income

Columbia Daily Tribune, Mo. logo Columbia Daily Tribune, Mo. 9/14/2019 By Pat Westhoff, Columbia Daily Tribune, Mo.
a man wearing a suit and tie smiling at the camera: Westhoff © Columbia Daily Tribune/Columbia Daily Tribune, Mo./TNS Westhoff

Given all the negative headlines about trade disputes, unfavorable weather and other challenges facing the farm sector, the most recent farm income estimates may come as a bit of a surprise. The USDA recently projected that national net farm income would increase for the third straight year in 2019, to $88 billion.

The projection was much higher than previous estimates, primarily because of two factors. From an accounting standpoint, the biggest change by far was a $25 billion downward revision of 2018 farm production expenses, based on new surveys and other information. The new estimates indicate that farm production costs declined for the fourth straight year in 2018, and the projected increase for 2019 is less than one percent.

If the new data is correct, it does suggest that farmers have been more successful at reducing expenses than was generally believed. However, it also means that farm input suppliers are experiencing reduced sales. What can be seen as good news for farmers may not be viewed as favorably by others in rural communities.

The second factor explaining the increase in estimated 2019 net farm income is a large increase in government payments. New payment programs to compensate farmers for lost export sales due to trade disputes made over $5 billion in payments in 2018 and that figure is projected to exceed $10 billion this year.

Combined with traditional farm and conservation programs, total direct government payments to farmers are expected to exceed $19 billion this year. That would be the highest total since 2005, and would mean that government payments would account for 22 percent of net farm income this year, the highest share since 2006.

Even those totals underestimate the total value of government programs to U.S. farmers. Crop insurance premium subsidies reduce the producer cost of crop insurance by more than $6 billion this year, and this year's unfavorable weather means that indemnity payments for losses are likely to exceed total premiums.

While the increase in farm income estimates is positive news, it is important to maintain perspective. Net farm income remains well below the 2011-2014 average of $106 billion per year, and farm debt-to-asset ratios are projected to increase for the seventh straight year in 2019. Farm financial stress is real and it continues.

Our institute also issued an update of its projections for agricultural markets last week. In spite of reduced production, we project that corn and soybean prices could actually decline marginally for the crop harvested this fall compared to prices for last year's crop. Trade disputes, African swine fever and slower economic growth have weakened demand for U.S. farm products.

Assuming we have more normal growing conditions next year, our projections show significant increases in corn and soybean production in 2020. The likely consequence is lower prices for next year's crop.

If the future does unfold in line with our projections, it suggests continued pressure on farm finances. Without a trade agreement or some other positive surprise, it seems likely that there will once again be calls for ad hoc assistance to the farm sector in 2020.

Pat Westhoff is director of the Food and Agricultural Policy Research Institute at the University of Missouri and a professor of agricultural and applied economics. The opinions expressed here are his own and do not reflect official positions or endorsements of the University of Missouri.

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©2019 Columbia Daily Tribune, Mo.

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