Higher prices for corn, soybeans, cattle and hogs could translate to record net farm income in Missouri in 2021. The outlook for Missouri’s farm finances is much better than it looked a year ago. year, but risks remain.
At the height of the pandemic in 2020, the state of agricultural finances appeared precarious. Farm commodity prices have been depressed by supply chain disruptions, a global economic recession and other factors.
In response, policymakers have created a variety of ad hoc programs to compensate farmers for lost income. Missouri farmers received a record $ 1.5 billion in government payments in 2020.
In the last months of 2020, the situation has changed. The general economy began to recover, China increased its imports of agricultural products, and various other factors pushed up the prices of agricultural products. Ultimately, the total value of crop and livestock sales by Missouri farmers was about the same in 2020 as it was in 2019.
In estimates released in early September, the USDA reported that Missouri’s 2020 net farm income was $ 3.1 billion, the highest level in six years. The turnaround was remarkable, but was tempered by the fact that it was largely a function of significant temporary government assistance.
This year, crop prices have remained high, hog prices have jumped, and cattle prices have risen from their 2020 lows.
In updated projections released by our institute last week, the result is a record year for Missouri net farm income in 2021. We forecast Missouri farm cash receipts to grow by nearly $ 3 billion this year, to hit a record $ 12 billion. These increases are partially offset by lower government payments and higher production costs.
At $ 4.5 billion, our projection for net farm income for 2021 is higher than previous highs in 2004, 2013 and 2014, and triples the level of average annual income between 2015 and 2018, when the farm financial situation was particularly dire. .
Looking ahead, our updated projections tell a mixed story. Crop prices could drop a bit in 2022 if Brazil recovers from a drought that reduced maize production this year. If no new program is put in place, government payments could drop sharply in 2022.
Combined with the increase in production expenses, the net impact could be a decline in Missouri’s net farm income in 2022 and again in 2023. However, the decline is quite modest, and the outlook is for farm income to remain higher. to $ 3.4 billion per year for the next five years.
As always, the outlook is uncertain. Even brighter prospects are possible if China continues to increase its purchases of agricultural products, if agricultural input prices moderate, or if changes in government policy provide more support than current programs.
However, downside risks also exist. Interest rates could rise faster than currently expected, increasing the cost of borrowing. As we have seen in 2020, even small changes in demand can lead to big changes in the prices of agricultural products. Inflation in input costs could accelerate, reducing profit margins even if commodity prices remain high, and adverse weather conditions could reduce Missouri agricultural production in any given year.
Overall, however, the current outlook for Missouri’s farm economy is much more optimistic than we and many others anticipated in the summer of 2020.
Pat Westhoff is director of the University of Missouri’s Food and Agricultural Policy Research Institute and professor of agricultural and applied economics. The opinions expressed here are his own and do not reflect the official positions or endorsements of the University of Missouri.