USDA Estimates: Net Farm Income vs Net Cash Income
Farm Bureau chief economist John Newton notes an interesting divergence in USDA farm income estimates for 2020. For calendar year 2020, USDA projects Net Farm Income to be up and Net Cash Income will be down. This divergence in direction has only occurred twice in the last 20 years. As John explains, the primary difference in the two is "primarily related to how sales of inventory are treated. For example, during the short crop year of 2019, farmers likely sold products from the prior year’s inventories. Since net cash income is based on the year in which the sales occur and net farm income is based on the year the production occurred, the inventory adjustment changes total gross income and net farm income for the production year."
In other words, Net Farm Income attributes income from crops to the year it was produced while Net Cash Income attributes it to the year in which it actually sold and the income realized. The reason for the divergence in 2020 projections is that row crop yields in much of the country were poor in 2019, which affected 2019 Net Farm Income. However, crops unsold and in storage, which can be anything from corn to potatoes to deferred priced sugar beets that were delivered and millled in the fall of 2019, will impact the Cash Income measurement in 2020 instead of the year it was produced, which was 2019.
Bottom Line: although Farm Income is projected to be up in 2020 vs 2019, there will continue to be a cash crunch at the farm level until some of the new crop is sold later in the year.
Farm Debt:
Another observation in the article is farm debt. While Real Estate debt at the farm level is forecast to continue to climb by 2.2%, Non-Real Estate debt is forecast to remain stable, maintaining the trend Non-Real Estate debt since 2014. However, Real Estate debt is forecast to be the highest nominal figure ever and 2nd only to 1980 in inflation adjusted figures.
This implies that some amount (possibly high?) of the increase in Real Estate debt is from farmers rolling operating loans and losses over to Real Estate debt. Barring a major turnaround, we will likely see additional bankruptcies and farm land being sold to shore up balance sheets over the coming 12 months.
The debt chart and a link to the full article are below. It lists a lot of figures that can make your eyes glaze over. Don't worry about catching and digesting each figure, instead focus on direction and percentage of change.
