U.S. farm income will be slightly higher than expected this year due chiefly to $4.7 billion in Trump tariff payments that will buffer the impact of trade war on commodity prices, says the USDA. With the bailout, farmers are forecast to collect $13.6 billion in direct farm payments, the largest amount in 12 years.
A second round of Trump payments could be announced as early as today, possibly affecting farm income, now forecast at $66.3 billion. It would be the second-lowest figure for net farm income since 2006. Farm finances remain solid despite a five-year slump in income.
Over the weekend, the White House said China would begin purchase immediately of a yet-to-be-determined amount of U.S. farm exports during Sino-U.S. trade talks, and President Trump said he would terminate NAFTA within six months to force Congress to ratify the new tri-national trade pact or revert to pre-NAFTA rules. Farm groups have longed to restore trade with China, their former No. 1 customer, and want to maintain duty-free access to Canada and Mexico, guaranteed in NAFTA and its proposed successor. Exports generate 20 cents of each $1 in farm revenue.
USDA economists raised their forecast for net farm income, a broad gauge of profits, by $600 million from their August estimate. The Trump payments outweighed a modest rise in farm expenses.
This year would be the third in a row that net farm income is below the 2000-17 annual average of $76 billion. The period includes the seven-year commodity boom that crested with record-high income of $123.8 billion in 2013 and comparatively low-income years before and after the boom.
“I think it is yet to be determined if this is a new normal,” said USDA economist Carrie Litkowski, responding to a question about farm-income patterns. After all, she said, income this year would be well below the longer-term average.
The trade bailout “is playing a role in our forecasts for this year,” she said.
Trump tariff payments would amount to one-third of the $13.6 billion in cash paid to farmers this year. Crop and dairy subsidies would total $3.4 billion, land stewardship $3.9 billion and various disaster relief and supplemental assistance programs $1.6 billion. Payments generally have run $10-12 billion a year recently.
Indicators of financial stress, such as the debt-to-asset ratio, are at benign levels although they have been edging upward since 2012. The debt-to-asset ratio would be 13.4 percent this year, up from 13.1 percent in 2017.
The USDA estimates farm income three times a year. The next forecast is due Feb. 6. It would update the 2018 figure and make the first forecast of 2018 income.