Farmers and ranchers will receive a projected $10.7 billion in Trump tariff payments this year, the major reason that direct federal payments will amount to 22 percent of net farm income, say USDA economists. The trade war payments would be twice as large as last year’s $5.1 billion, when the administration created the stop-gap Market Facilitation Program to mitigate the impact of the Sino-U.S. trade war on the agricultural sector.
The USDA estimated net farm income, a measure of profits, at $88 billion this year, up by 5 percent from $84 billion in 2018. Income in both years would be much higher than initially thought, due to large farm program payments and to aggressive cost-cutting by producers. This year’s farm program payments would be the largest since $24.4 billion in 2005. The commodity boom that began in 2006 reduced federal payments to around $11 billion annually.
The estimate of $19.5 billion for payments this year includes $10.7 billion in Trump payments, $2.3 billion in traditional crop subsidies, $1.7 billion in disaster aid and $3.7 billion for land stewardship, such as the long-term Conservation Reserve. In total, the payments, at 22 percent of net farm income, would be the highest since 28 percent in 2006, according to USDA data.
In the end, the Trump payments could be larger than USDA anticipated in updating its farm income forecast. “We assume producers will receive 50 percent of the announced total of $14.5 billion in the first tranche,” said the Economic Research Service. Senior USDA officials say a second tranche, of $3.6 billion, may be disbursed in November, if market and trade-negotiation conditions warrant, with the final $3.6 billion possible in January.
With its updated figures, the USDA presented a much brighter picture of farm income than in its March forecasts of $63.1 billion in 2018 and $69.4 billion this year; roughly half of the $123.7 billion seen in 2013 at the crest of the commodity boom. Farm groups and allies in Congress have pointed to the estimates of low farm income in arguing for federal intervention.
“We had a pretty big adjustment in net farm income,” said Warren Preston, deputy USDA chief economist, in a USDA radio news interview. “Farmers were able to reduce their expenses again, as they have been doing for the last several years.” Farmers and ranchers sliced total expenses by $25 billion, or 7 percent, in 2018, said USDA, which made a similar 7 percent reduction in its estimate of 2019 expenses.
If the forecast of $88 billion proves true, “inflation-adjusted net farm income would remain slightly below its historical average across 2000-18” of $90.1 billion, said USDA. Market prices for crops are higher than in 2018 but harvests of corn and soybean are expected to be smaller than last year, keeping crop revenue 2 percent below the 2018 level. Conversely, livestock production is up but prices are down, limiting revenue to a 0.5 percent increase.
The debt-to-asset ratio, a closely watched indicator of solvency, was forecast to rise to 13.5 percent this year, from 13.3 percent in 2018. The debt-to-equity ratio also would tick upward. “The farm sector’s solvency ratios are forecast to be at their weakest points since 2009 but close to their long-term averages from 1990 to 2018,” said the USDA.
Farm assets were estimated at $3.1 trillion, up $59 billion or 2 percent this year, while debts would total $416 billion, up by $14 billion or 3 percent, from 2018.
The August farm income forecast is available here. The next update is scheduled for Nov. 27.