2020 was on track to be a respectable, perhaps even a moderately good year in regards to farm income. However, despite the hard work that has been done to reverse the negative impacts of the trade war with China and the weather disruptions over the past two years, the COVID-19 pandemic has shattered expectations for a return to "normal."
One bit of good news is that prior to the massive disruption to the economy, farm profit fundamentals were looking fairly solid. Both net farm income and net cash farm income increased in 2019 with net farm income (pre-COVID-19) expected to increase 3.3%in 2020. Of the two commonly used measures for farm income, net farm income excludes revenue realized from inventory sales and is generally considered a better barometer of farm health.
2019 farm income was up, but land values were slightly down
Summary data from the end of 2019 indicate an approximate 10% increase in farm income for 2019. The numbers were helped by a significant increase in government subsidy payments that increased over 60% for the year. As of Q3 in 2019, agricultural land values had dropped in year-over-year percentage terms in the key agricultural states of Iowa, Indiana and Illinois. In the context of 2019 farm income data when government subsidies were not included, the overall conclusion is that 2019 was a slightly down year for farm income and land farmland values.
Pre-pandemic expectations for 2020 farm income
For 2020 (pre-pandemic), farm cash receiptswere expected to increase by $10.1 billion, with both animal products and farm crops expecting an increase in revenue. These numbers were even more impressive when you factor in that market facilitation payments - direct subsidy payments to farmers - were expected to decrease significantly from $23.7 billion to $15 billion.
Additionally, prior to COVID-19, farmers were hopeful for achieving prices in the high $3 level per bushel for corn and near the $9 level per bushel for soybeans. However, economists are now doubtful that those prices can be achieved. With farmers still holding significant inventories of corn and soybeans that have yet to be priced by the market, the potential for downward price pressure due to reduced demand is a real threat for the farm economy overall.
Since the coronavirus has appeared, there has been a decline in the bushel price for corn, with a steep decline realized from the end of February to mid-March. Similarly, soybean prices showed a steep drop in the same time period. Economists note that a combination of substantial farm aid and above-average crop yields will be required to ensure that 2020 farm incomes are high enough to sustain solvency for most farms.
Price Loss Coverage (PLC) and Agricultural Risk Coverage (ARC) payments may still convey benefits to farmers since Market Year Average (MYA) prices are still be analyzed - PLC and ARC payments are scheduled to be made in October 2020. Another factor that might inure to the benefit of farmers is if crop prices fall below the trigger prices for making insurance payments. At the present time, crop prices for corn and soybeans are still too high to generate a Revenue Protection (RP) payment absent a decline in yield.
Halderman Real Estate and Farm Management understands that 2020 will be a tricky year to navigate your operations, especially if you are a buyer or seller of farmland. To learn more about our farm management services, contact us today. We look forward to helping you through these difficult times.