Forecasting farm sector income for the year is like forecasting the weather. There are indicators of what’s coming, but that can change quickly depending on a near-infinite number of factors. Let’s start by looking back at 2020 to see if it applies to 2021.
First, the good news.
According to the USDA, net farm income for 2020, a broad measure of profits, is expected to show a $36b increase over 2019. This rise is up approximately 43%!
One of the primary drivers of this increase is the corresponding increase, over 100%, of direct government payments, excluding USDA loans and insurance indemnity payments. This increase in government payments resulted primarily from trade-war and coronavirus relief programs.
And more good news.
Experts expect inflation and interest rates to remain low in 2021. As the US and the world come back on-line, the USDA expects GDP to rise by as much as 4%. This increase should help to boost commodity prices across the board. We already see the grain markets reflect this optimism.
Now the not so good news.
According to the Farm Bureau, US farm sector debt is expected to increase by about 4% as the dust clears from 2020. Approximately 65% of farm debt is real estate. The positive outlook for commodity prices and low-interest rates drive increases in land costs to buyers and renters.
The question is, what does this mean for 2021?
Higher commodity prices could provide a buffer for producers to help compensate for the almost certain reduction in government payments as we continue to emerge from the pandemic.
In short, many of the uncertainties from 2020 will carry over into 2021.
Detailed farm budgets and robust risk management practices can help mitigate some of the unknowns. Access to capital is essential, but equally important is the timing and the amount of money.
Do the timing and the amount of capital you have access to put you in a position to not only control some of your costs but drive down costs?
As you put your 2021 marketing plans together, does your loan structure give you the flexibility to participate in the market in a way that maximizes your profit potential?
Are you partnering with vendors and suppliers that understand your business and can provide the guidance and the tools to help you be successful?
FarmOp Capital is committed to supporting US producers who play a vital role in feeding the world.
Our team includes experienced farm operators, agricultural technology leaders, and financial experts focusing on operating and inventory loans. This mix of talent not only sets us apart. It helps us understand the unique challenges you face in rapidly changing markets.
To learn more about our unique approach to Ag Lending, give us a call at (833) FARMOPS (833-327-6677, or visit our website at www.farmop.com.
# # #
For Media Inquiries:
Sandra Erdtmann
media@foc.ag