(West Lafayette, IN) - A projected long term decline in farm income following a banner year is viewed as “good news” by an agriculture economist at Purdue University.
Dr. Michael Langemeier said the USDA forecast still places farm income over the next 10-years at levels much higher than where they stood prior to the 2020 recovery. “I actually look at it as good news because we’re not dropping down to the prices we had in 2014 to 2019,” he said.
USDA is predicting it might be a decade or more before farm profits rise above the numbers from 2020. The $120 billion in U.S. farm income last year was the highest since 2013, according to USDA.
USDA predicts farm profits nationwide this year will decline by 8.1-percent and fluctuate annually between $99.3 billion to $109 billion through 2030. If the forecast proves accurate, Langemeier said most farmers will be able to keep their heads above water by not having to take out as many loans or dip into equity as much to fund operating costs. “If you start going to $60 billion to $70 billion in net farm income that really makes the working capital situation very, very tight,” he said.
The income declines were forecast despite USDA projecting an increase in annual sales through 2030. Langemeier said farm income last year was artificially high by the amount of federal dollars awarded to help farmers weather the financial storm brought on by COVID-19 and the trade war with China. He also said the projected income decline made sense because the amount of government aid reached historic levels just as long struggling grain prices took off from a big jump in demand for exports primarily by China.
Langemeier said government dollars represented a good portion of the farm income and assistance is not expected to be anywhere close to the 2020 amount in the coming years. He said prices will return to being the major driver of farm income in the future. He doesn’t expect current prices to remain as high but he also doesn’t envision a major drop in prices any time soon.
Langemeier said prices started plummeting after 2013 because of a large surplus built from several years of producing more corn and soybeans to take advantage of high returns. Supplies are tight right now but the amount of time it took to eat into the surplus will be needed to rebuild the amount in storage, he said.
Langemeier said what actually happens to future prices also hinges largely on whether China continues to aggressively purchase corn and soybeans from the U.S. and economic conditions across the globe. People from other countries with higher incomes purchase more protein. If greater need for meat in foreign countries isn’t served by U.S. livestock producers, there will be more orders for U.S. corn and soybeans from other countries feeding additional animals to meet consumer demand, he said.
Exports remaining high means price stability for an extended period from continued strained supplies. “I don’t think the prices are going to remain as strong as they are in 2021 but I don’t think we’re going to drop down to $3.50 corn either. So, you have a positive situation no matter how you look at it,” he said.
According to USDA, the income projections are based on no change in current government policy in areas like trade and COVID-19 relief measures.
