2021 USDA farm income forecast: cash receipts to rise, but lower direct federal aid expected to drive drop in net income

The U.S. Department of Agriculture's Economic Research Service has published the first of three 2021 Farm Sector Income Forecasts. The forecast is updated three times a year, usually in February, August, and November. You can read the full report here, but below are the highlights. Click here for the December 2020 report for comparison.

• Net farm income, a broad measure of profits, is forecast to decrease $9.8 billion (8.1 percent) to $111.4 billion in 2021.
• In inflation-adjusted 2021 dollars, net farm income is forecast to decrease $12 billion (9.7%) in 2021 after increasing $37.8 billion (44.2%) in 2020 to its highest level since 2013.
• Net cash farm income (a more precise measurement of profits) is forecast to decrease $7.9 billion (5.8%) to $128.3 billion in 2021.
• Inflation-adjusted net cash farm income is forecast to decrease $10.4 billion (7.5%) from 2020 and would be 15.3% above its 2000-19 average ($111.3 billion).
• Cash receipts are expected to increase in 2021, but lower direct government farm payments are predicted to drive most of the decline in both net income measurements.
• Direct government farm payments are forecast at $25.3 billion in 2021, a decrease of $21 billion (45.3%) in nominal terms. The expected decrease is because of lower supplemental and ad-hoc disaster assistance for Covid-19 relief in 2021 relative to 2020.
• Higher production expenses are also expected to contribute to the 2021 decline in net income. Total production expenses, including operator dwelling expenses, are forecast to increase $8.6 billion (2.5%) to $353.7 billion (in nominal terms) in 2021. Most of this reflects higher spending on feed, fertilizer, and labor.
• Cash receipts for all commodities are forecast to increase $20.4 billion (5.5%) to $390.8 billion (in nominal terms) in 2021.
• Total animal/animal product receipts are expected to increase $8.6 billion (5.2%) with increases in receipts for cattle/calves, hogs, and broilers.
• Total crop receipts are expected to increase $11.8 billion (5.8%) from 2020 levels following higher receipts for soybeans and corn.
• Farm business average net cash farm income is forecast to decrease $6,100 (6.2%) to $91,800 per farm in 2021. Farm businesses in all resource regions are forecast to see declines in net cash farm income except the Heartland. 
• When farm businesses are categorized by commodity specialization, most see average net farm income fall in 2021. The exceptions are farms specializing in wheat, corn, soybeans, and hogs.
• When adjusted for inflation, farm sector equity and assets in 2021 are relatively unchanged from 2020.
• Farm debt is forecast to increase by $9.6 billion (2.2%) to $441.7 billion (in nominal terms), led by an expected 3.1% rise in real estate debt. 
• The farm sector debt-to-asset ratio is expected to rise slightly from 13.84% in 2020 to 13.89% in 2021. 
• Working capital, which measures the amount of cash available to fund operating expenses after paying off debt due within 12 months, is forecast to decrease 12% from 2020. 
• Total median farm household income, forecast to increase to $86,086 in 2020, is expected to remain relatively flat in 2021 at $86,917. The income increases in 2019 and 2020, driven by direct government aid, bucked a trend of declining income from 2015 through 2018.
• Economic relief programs such as the Paycheck Protection Program and the latest Covid-19 aid package are expected to boost income among those affected by the pandemic.
• Many farmers rely on off-farm income. The average amount of off-farm income was expected to rise 1.5% to $69,784 in 2020 and to rise 2.3% in 2021 to $71, 407. If that prediction pans out, it will be the highest median off-farm income level since 2014.