U.S. cash farm income expected to slump as government aid drops

Crop farmers are expected to face continued pressure from low prices

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Reuters – U.S. net cash farm income will fall 11 per cent this year as production costs rise and government aid programs set up to assist producers during the U.S.-China trade war wind down, according to a U.S. Department of Agriculture forecast issued on Feb. 5.

The drop, of $13.1 billion in inflation-adjusted 2020 dollars, is expected as direct government farm payments are projected to plummet 36.7 per cent following an estimated decline in payments from the Trump administration’s trade aid programs.

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Why it matters: Despite increased sales, prices are expected to lower, which puts pressure on farm incomes.

Data show struggles in the U.S. agricultural economy will continue as farm bankruptcies rise and producers face ever-mounting farm debt, prolonged low commodity prices, volatile weather patterns and a fatal pig disease that has decimated China’s herd.

Washington and Beijing signed an initial deal last month to ease tensions in their trade war, which slowed U.S. farm exports to China. The USDA said Feb. 4 farmers will start receiving the final tranche of a second round of trade-related aid payments by mid-February.

“We are assuming these are the final payments,” USDA Economic Research Service senior economist Carrie Litkowski said on a conference call with reporters.

However, net farm income is expected to tick up 1.4 per cent in 2020, after adjusting for inflation, Litkowski said.

Livestock farmers are expected to sell more animals and meat this year at higher prices, she said. But crop producers face a more complicated picture: corn growers are expected to get lower prices, and soybean growers could struggle with sales due to lower demand.

The difference between net cash farm income and net farm income is based on how the agency accounts for farm income.

Net cash income is recorded in the year a commodity such as corn, soybeans or pork is sold. Net farm income is for the year it was produced, and factors in such things as depreciation of assets, including farm equipment.

Net cash income tends to better reflect a farmer’s cash flow, Litkowski said, because it “is how much money might be available to a farmer in that year.”

Such economic divergences are unusual. A similar split happened in 2012, after a devastating drought sent grain prices soaring to historic highs and prompted farmers to sell off crops in inventory.

Farmer selling patterns in 2020 are likely to be similar, particularly among livestock producers, Litkowski said.

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