2021 Farm Sector Income Forecast
Suggested citation for linking to this discussion:
U.S. Department of Agriculture, Economic Research Service. Farm Sector Income & Finances: Farm Sector Income Forecast, December 1, 2021.
Net farm income, a broad measure of profits, is forecast to increase by $22.0 billion (23.2 percent) from 2020 to $116.8 billion in 2021. This expected increase follows a forecast increase of $15.7 billion (19.9 percent) in 2020. After increasing by $9.2 billion (8.6 percent) in 2020, net cash farm income is forecast to increase by $17.0 billion (14.7 percent) to $133.0 billion in 2021. In inflation-adjusted 2021 dollars, net farm income is forecast to increase by $18.4 billion (18.7 percent); net cash farm income is forecast to increase by $12.6 billion (10.5 percent). If realized, net farm income in 2021 would be at its highest level since 2013; net cash farm income would be at its highest level since 2014 (in real terms).
Note: In the text below, year-to-year changes in the major aggregate components of farm income are discussed only in nominal dollars unless the direction of the change is reversed when looking at the component in inflation-adjusted dollars.
- Overall, farm cash receipts are forecast to increase by $64.7 billion (17.8 percent) to $427.3 billion in 2021 in nominal dollars. Total crop receipts are forecast to increase by $35.4 billion (17.9 percent) from 2020 levels to $233.0 billion. When combined, corn, soybean, and wheat receipts are forecast to increase by $35.3 billion (36.4 percent) in 2021, accounting for almost all the forecasted growth in crop cash receipts. Total animal/animal product receipts are expected to increase by $29.3 billion (17.7 percent) to $194.3 billion following increases in receipts for broilers, cattle/calves, and hogs.
- Direct Government farm payments are forecast at $27.2 billion in 2021, a $18.5 billion (40.4 percent) decrease from 2020. Direct Government farm payments include Federal farm program payments paid directly to farmers and ranchers but exclude U.S. Department of Agriculture (USDA) loans and insurance indemnity payments made by the Federal Crop Insurance Corporation. Much of this decline is because of lower supplemental and ad hoc disaster assistance to farmers and ranchers for the coronavirus (COVID-19) pandemic compared to 2020 and the closure of the Market Facilitation Program.
- Total production expenses, including expenses associated with operator dwellings, are forecast to increase by $29.8 billion (8.3 percent) in 2021 to $387.6 billion. Nearly all categories of expenses are forecast to be higher in 2021, with feed and livestock/poultry purchases expected to see the largest dollar increases.
- Farm sector equity is expected to increase by 2.8 percent to $2.81 trillion in nominal terms, a decline of 1.0 percent after adjusting for inflation. Farm sector assets are forecast to increase 2.8 percent (nominal) in 2021 to $3.26 trillion following increases in the value of farm real estate assets. When adjusted for inflation, both total assets and farm real estate assets are forecast to fall by 1.0 percent and 1.7 percent, respectively. Farm sector debt is forecast to increase 2.9 percent in 2021 to $454.1 billion in nominal terms but fall by 0.8 percent when adjusted for inflation. Real estate debt is forecast to rise but non-real estate debt is forecast to remain relatively unchanged from 2020. Debt-to-asset levels for the sector are forecast to remain relatively steady at 13.91 in 2021. Working capital is forecast to increase by 9.6 percent in 2021.
Growth in Crop Receipts Forecast for 2021
Crop cash receipts are forecast at $233.0 billion in 2021, an increase of $35.4 billion (17.9 percent) from 2020 in nominal terms. Combined receipts for corn, soybeans, and wheat are forecast to increase $35.3 billion, accounting for almost all of the net increase, while receipts are expected to fall for vegetables and melons and fruits and nuts.
Corn receipts are forecast to increase by $24.4 billion (52.4 percent) in 2021, caused by higher expected prices and quantities. Soybean receipts in 2021 are expected to increase $8.6 billion (20.8 percent), because of forecasted growth in prices. A gain in cottonseed receipts in 2021 is expected to drive an increase of $0.1 billion (1.3 percent) in total cotton receipts. Wheat receipts are forecast to increase $2.2 billion (25.0 percent), as a large gain in prices should outweigh a negative quantity effect. Similarly, higher prices in 2021 should outweigh lower quantities sold for sorghum, resulting in a forecasted increase of $0.4 billion (23.0 percent) in receipts. Hay receipts are forecast to increase $1.5 billion (20.1 percent) due to rising prices and quantity sold.
Vegetable and melon cash receipts are expected to fall $1.6 billion (8.8 percent) in 2021, mainly because of lower prices. Cash receipts for fruits and nuts are expected to fall $2.5 billion (8.7 percent) in 2021, as the effects of lower prices should outweigh a positive quantity effect. Growth of $0.4 billion (31.5 percent) in sugarbeet receipts is also forecast for 2021.
Animal/Animal Product Receipts Forecast to Increase in 2021
Total animal/animal product cash receipts are expected to increase $29.3 billion (17.7 percent in nominal terms) to $194.3 billion in 2021. Growth in receipts is forecast for all major animal/animal products, with the largest increases expected for broilers, cattle and calves, and hogs.
Milk receipts are expected to increase $1.1 billion (2.8 percent) in 2021, due to higher forecasts for prices and quantities sold. Cash receipts from cattle and calves are expected to increase $8.3 billion (13.2 percent), also because of higher prices and quantities sold. Higher prices are expected to result in an increase of $7.7 billion (40.1 percent) in hog cash receipts in 2021.
Broiler receipts are expected to increase $10.5 billion (48.6 percent) in 2021, mostly due to higher expectations for prices. Higher prices should also drive receipts for turkeys $0.8 billion (14.8 percent) higher during the year. Cash receipts for chicken eggs are expected to grow $0.6 billion (7.0 percent) in 2021, also mostly due to forecasted growth in prices.
Increasing Prices Primary Driver of Growth in Cash Receipts in 2021
To better understand the factors underlying the forecast change in annual receipts from 2020 to 2021, we separate the change into two effects:
- a "price effect" where we project the change in cash receipts associated with holding the quantity sold constant at 2020 levels and allowing prices to change to forecast 2021 levels, and
- a "quantity effect" where prices are held constant from 2020 and quantities change to forecast 2021 levels. In 2021, increasing prices and quantities sold are expected to have positive effects on cash receipts.
Overall, cash receipts are forecast to increase $64.7 billion in 2021, with an estimated positive price effect of $63.3 billion, and a projected positive quantity effect of $0.2 billion. In addition, an upward shift of $1.2 billion is from forecasts for commodities whose price and quantity effects cannot be separately determined. Price and quantity effects on cash receipts are positive for livestock commodities, while only price effects are positive for crop commodities; however, price effects are much larger in each case.
Direct Government Farm Payments Forecast to Decrease in 2021
Direct Government farm program payments are those made by the Federal Government to farmers and ranchers with no intermediaries. Typically, most direct payments to farmers and ranchers are administered by USDA under the Farm Bill or other authorities, and other ad hoc and supplemental programs authorized by Congress. Government payment amounts do not include Federal Crop Insurance Corporation (FCIC) indemnity payments (listed as a separate component of farm income) and USDA loans (listed as a liability in the farm sector’s balance sheet). After reaching a record high of $45.7 billion in 2020, direct Government farm program payments are forecast to decrease by 40.4 percent ($18.5 billion) to $27.2 billion in 2021. This overall decrease reflects lower anticipated payments from supplemental and ad hoc disaster assistance, mainly direct payments from COVID-19-related assistance programs.
- Supplemental and ad hoc disaster assistance payments in 2021 are forecast at $19.9 billion, a decrease of $11.7 billion from 2020, primarily because of lower total payments from COVID-19-related assistance programs.
- USDA pandemic assistance for producers, including the Coronavirus Food Assistance Program (CFAP), provides relief to producers whose operations are directly affected by COVID-19. Payments in calendar year 2021 from these USDA programs are forecast at $8.0 billion. In 2020, producers received $23.5 billion in CFAP payments.
- Non-USDA pandemic assistance (payments from the Paycheck Protection Program (PPP), administered by the Small Business Administration), is forecast at $8.7 billion for 2021, compared with $6.0 billion in 2020. The PPP payments are designed to help small businesses keep their workers on the payroll. Although administered as a loan, the loans will be forgiven if the program's requirements are met. We treat these loans as a direct payment to farm operations (assuming all recipients will meet the requirements and, therefore, have their loan forgiven). The forecast amounts may be revised as more data become available, with any unforgiven amounts included in farm debt instead of direct payments.
- Farm bill commodity payments in calendar year 2021 under the Agriculture Risk Coverage (ARC) program are expected to be $95 million, a decrease of $1.2 billion from 2020 levels. Price Loss Coverage (PLC) payments in 2021 are expected be $2.1 billion, a decrease of $2.8 billion from 2020 levels. ARC and PLC payments, if triggered, are for the previous crop year. ARC payments are expected to decrease in 2021 because of higher commodity prices for all covered commodities and higher yields in 2020 compared with 2019 levels, particularly for corn and soybeans. PLC payments are expected to decrease in 2021 because of higher prices for all covered commodities in 2020 compared with 2019.
- The Dairy Margin Coverage Program is forecast to make net payments of $1.1 billion to dairy operators, compared with $0.2 billion in 2020, mostly because of higher feed costs.
- Conservation payments from the financial assistance programs of USDA's Farm Service Agency and Natural Resources Conservation Service are expected to be $4.0 billion in 2021, up 3.9 percent from 2020.
- Residual payments of $83.9 million from the Market Facilitation Program (MFP) are included in our 2021 forecast. The payments are much lower than 2018–2020 because no new payments have been programmed by USDA.
See data table on government payments.
Production Expenses Forecast to Increase in 2021
Farm sector production expenses—including expenses associated with operator dwellings—are forecast to increase by $29.8 billion (8.3 percent) from the previous year in nominal terms to $387.6 billion in 2021. If this forecast is realized, production expenses would be the highest since 2016 yet below the 2014 peak in inflation-adjusted terms.
See data tables on production expenses.
Nearly all expense categories are forecast to rise during the year:
- Feed expenses, the largest single expense category, are forecast to increase in 2021 by $7.6 billion (13.4 percent) in nominal terms to $64.4 billion, because of higher prices for feed commodities.
- Livestock and poultry purchases are forecast to increase by $4.5 billion (15.6 percent) to $33.5 billion in nominal terms.
- Fuel and oil expenses are projected to increase by $3.9 billion (32.2 percent) in nominal terms to $15.8 billion. This rise is partly driven by the U.S. Energy Information Agency's November forecast of higher diesel prices in 2021, up by 72 cents per gallon compared with 2020.
- Fertilizer-lime-soil conditioner expenses are forecast to increase by $3.1 billion (12.5 percent) in nominal terms in 2021 to $27.5 billion.
- Overall, total cash labor expenses are forecast to increase by $1.3 billion in nominal terms (3.5 percent) to $37.9 billion, because of $1.1 billion (3.6 percent) increase in hired labor expenses.
- Interest expenses are also expected to increase by $1.3 billion (6.6 percent) in nominal terms to $20.6 billion, because of higher interest expenses on real estate debt.
- Net rent to landlords is forecast to increase by $0.9 billion (5.1 percent) in nominal terms in 2021 to $18.9 billion.
- Seed expenses are expected to grow slightly in nominal terms—by 1.8 percent, or $0.4 billion. This increase disappears when prior years are adjusted for inflation.
- Pesticide expenses are the only major expense category expected to drop in 2021. This reduction is slight in nominal terms—less than $0.01 billion (less than 0.1 percent).