By Dusty Sonnenberg, CCA, Ohio Field Leader: a project of the Ohio Soybean Council and soybean checkoff.
Agricultural Financial Conditions and an Outlook for 2021 were the topics of Day one of the 2020 Agricultural Policy and Outlook Conference sponsored and hosted by The Ohio State University Department of Agricultural, Environmental and Development Economics.
Dr. Ani Katchova, Associate Professor and Farm Income Enhancement Chair began the program by discussing overriding themes in current farm income and the finance outlook.
“U.S. net farm income and net cash income are forecast to increase for 2020, which is a fourth consecutive year,” said Katchova. “This growth in farm income is mainly driven by higher government payments, while livestock receipts are expected to be lower as we close out 2020.”
Farm income in Ohio has been 2.4 – 2.5% of U.S. farm income but with higher volatility over the last decade.
“U.S. net cash income is forecast to increase by 4.5% and U.S. net farm income is forecast to increase by 22.7% in 2020. Ohio net cash income and Ohio net farm income experienced a decrease in 2019 after increasing for two consecutive years,” said Katchova. “Crop receipts are expected to increase while animal product receipts are expected to decline.”
Government payments are having a large impact on the bottom line for may farms this year.
“Direct government farm payments are expected to increase by 65.7% over the 2019 level to $37.2 in the U.S. for 2020,” said Katchova.
Dr. Todd Kuethe from the Department of Agricultural Economics at Purdue University presented a Farmland Market Outlook as a part of the 2020 program.
Farmland prices across the Corn Belt have seen a steady increase over the last 30 years. With an exception around the year 2010, Ohio farmland values have continued to increase. Looking at a simple model of farmland prices, Dr. Kuethe uses considers three variables.
“The present value of farmland calculates the price as a function of the expected returns, over the cost of capital less the growth rate for future returns,” said Kuethe. “We need to examine three pieces of information: farmland returns, discount rates, and the potential for growth in returns.”
Cortney Cowley, Economist at the Federal Reserve Bank of Kansas City, discussed factors impacting the U.S. agricultural economy in 2020 and things to watch for in 2021.
“In contrast to the broader economy, U.S. agriculture had been in a prolonged downturn, even before the pandemic,” said Cowley. “Economic conditions in agriculture have improved since April, thanks to government programs and the recent higher commodity prices.”
Credit for farmers is still a concern. “Agricultural credit conditions improved somewhat in the third quarter, but still remained weak,” said Cowley. “The outlook for the months ahead will depend on the path of agricultural commodity prices, and future government support programs.”
“Even before the pandemic, liquidity was expected to deteriorate alongside low profit margins,” said Cowley. “The pandemic disrupted agricultural markets in several ways., however prices of most ag commodities have improved since April. Farm income is also expected to be much higher than a year ago due to the ad hoc government payments.”
“The potential for severe difficulties in agriculture associated with the pandemic has lessened, for now,” said Cowley. “Concerns appear likely to reemerge, however, in early 2021 as government support fades, and the outlook depends on underlying market conditions.”
The 2020 Agricultural Policy and Outlook Conference continues with Day two focusing on Agricultural and Environmental Policy.
For more information visit: https://aede.osu.edu/programs/202021-agricultural-policy-and-outlooks