The Agriculture Department estimates that net cash farm income will drop by 9% this year as government payments fall off with the end of the Market Facilitation Program.
Net cash farm income is forecast at $109.6 billion in 2020, down $10.9 billion from 2019, according to USDA's 2020 farm sector income forecast released Wednesday by the Economic Research Service.
Direct government farm payments, which don't include crop insurance indemnities, are forecast to fall $8.7 billion, or 36.7%, if the Market Facilitation Program is not repeated this year.
The Trump administration created MFP in 2018 to offset the impact of retaliatory tariffs and repeated the program in 2019. The third and final round of the 2019 program payments is going to farmers this week and was included in the 2020 earnings estimate.
Agriculture Secretary Sonny Perdue has told farmers not to expect a 2020 MFP.
The drop in net cash farm income also reflects a sharp decline in crop sales based on the way the income measure is developed.
A broader measure of the farm economy — net farm income — is projected to rise modestly, by $3.1 billion, to $96.7 billion in 2020.
Net cash farm income is based on cash receipts from farming, plus government payments and 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.
USDA said the estimates of net cash farm income and net farm income diverge because of how sales from farmers' inventories are treated in the different measures. Relatively high net crop sales in 2019 of $14.7 billion — versus $500 million in 2020 — boosted the 2019 net cash farm income estimate. In estimating net farm income, cash receipts are adjusted to track more closely with the value of annual production, according to USDA.
The two measures also diverged significantly in 2012-2013. In 2012, drought-stricken farmers sold crops out of inventory to help with their cash flow, creating a spike in sales.
Adjusted for inflation, the estimated net cash farm income for this year is 0.6 percent below the average from 2000 through 2018 of $110.2 billion .
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The estimate for net farm income for 2020 is 5.4 percent above the 2000-2018 average of $91.7 billion,
Declines in net cash income are projected across most commodities, with the exception of pork and dairy, and all regions of the country, with the largest declines of 16% and 17% forecast for the northern Great Plains and Mississippi delta region, respectively.
Farm cash receipts are forecast to rise 2.7% to $384.4 billion in 2020, which would be a $10.1 billion increase over last year.
Growth in receipts for hogs, milk, cattle/calves, and poultry should increase total animal production receipts by $8.2 billion this year, while total crop receipts are expected to remain flat, increasing just $1.9 billion from 2019 levels.
When adjusted for inflation, total crop cash receipts are forecast to decline $1.7 billion.
The forecast could change depend on what happens with exports in the wake of the "phase one" trade deal with China. The forecast is based on assessments of ERS commodity analysts as well as the January World Agricultural Supply and Demand Estimates report. Market forecasts "likely do not reflect the full scope of the impacts (of the China deal) because this has just happened so recently," said ERS economist Carrie Litkowski. The agreement was signed Jan. 15.
Other measures in the farm profitability forecast show some weakening in farmers' financial position.
The farm sector's debt-to-asset ratio is projected to rise to 13.6% in 2020, up from under 13.5% in 2019. Farmers' working capital is forecast to drop 15% this year. Working capital is the amount of cash that producers have available for operating expenses after paying off debt that is due within 12 months.
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