The U.S. farm economy in 2021
U.S. farm income rose in 2021 and is expected to continue improving into 2022. Learn more about the global headwinds and tailwinds faced by farmland investors in our in-depth review.
The USDA Farm Income and Wealth Statistics report released early December 2021 shows positive signs for the health of the farm sector. In 2021, U.S. net farm income is expected to show an increase of 23.5% from 2020, with cash receipts for most row crops reaching their second-highest level since 2010. Government direct payments to farmers in 2021 are anticipated to drop 40% below the peak levels of 2020, while still registering as the second highest in history. Export markets are trending higher as trade with China rebounds as a result of the removal of retaliatory tariffs, rebuilding of swine herd from African swine fever, and a delayed South American harvest extending the U.S. selling window. Partially offsetting and providing some moderation to farmland returns will be higher labor, energy, and input costs.
Net farm income is gross farm income minus any production expenses. It includes net income from farm production as well as noncash items such as economic depreciation, rental income from operator dwellings, and changes in inventories. On the other hand, net cash income is the cash earned from farming and farm-related income, including government payments. U.S. net farm income is projected to reach US$116.8 billion in 2021, the highest since 2013. After rising 19.9% in 2020 relative to 2019, net farm income is forecast to increase 23.5% in 2021 from 2020. There has been a US$9.2 billion (8.6%) increase in net cash farm income in 2020 since 2019 that’s forecast to increase by US$17.0 billion (14.7%) to US$133.0 billion in 2021. Net cash farm income will also be the highest since 2014 and close to the 2013 peak of the past decade.
Government support payments to U.S. farmers in 2020 were the largest in history at US$45.7 billion and experienced a 40% drop to US$27.2 billion in 2021. Even with the significant reduction, these 2021 government payments will be the second-largest direct government annual support payments. The forecasted decrease is due to lower ad hoc disaster and supplemental aid for COVID-19 relief. In addition, the Coronavirus Food Assistance Program funded USDA purchases and distribution of US$3.0 billion in fresh produce, dairy, and meat.
Net farm income and net cash income increased in 2021 on higher cash receipts
U.S. farm net income vs. direct government payments share of net farm income (US$ billions)
Total production expenses in 2021 are expected to reach their highest level since 2014 and are expected to increase by 8.3% to US$387.6 billion in 2021 from 2020. Significant increases in energy, fertilizer, and labor costs are driving the expense hikes. Fuel and oil costs were up by US$4.0 billion in 2021, a 32.0% increase in 2021 over 2020, partially due to higher diesel price forecasts by the U.S. Energy Information Agency. Fertilizer costs are up by 12.0% in 2021. Total labor costs are estimated to be up by 2.0% in 2021 from 2020, due to a 2.0% increase in hired labor costs and 3.0% higher contract labor costs, reflecting labor shortages stemming from COVID-19-related labor market disruptions. Interest expenses are also expected to increase in 2021, up by US$1.3 billion (6.8%) to US$20.3 billion, due to higher interest rates on real estate debt. Going forward, despite improved revenue forecasts, farm operators and owners have expressed declining optimism about current and future agricultural market conditions, according to a recent survey conducted by Purdue University. Farm operators are particularly concerned about the continued increase in input costs due to heightened inflationary pressures.
U.S. farm production input costs showed signs of inflationary pressure
Total agricultural sector production expenses (US$ billions)
The USDA expects cash receipts to grow 18% in 2021 compared to 2020, with livestock products and crop receipts both up by 18%. The improved crop receipts will be driven by a 52% increase for corn, with soybeans up 21%, wheat up 25%, rice up 7%, and cotton up 6%. The category expected to see decreased crop receipts is fruits and nuts, down by 9%. The anticipated gains in cash receipts for corn and soybean were supported by strong export markets and expanded demand for wheat and other grains as feed (substituting for soybeans). The ongoing California drought and decreases in cotton acreage in 2021 contributed to the reduced crop receipt estimates and income for cotton and fruits and nuts.
Higher production volumes and higher prices have pushed total cash receipts for 2021 higher than the previous peak reached in 2012. Corn is the largest driver of this increase, with corn receipts registering a 52% increase over 2020, hitting US$71.0 billion in 2021, which would be close to the previous high point in 2012. Corn prices rose from US$3.50/bushel in 2020 to an estimated US$5.53/bushel in 2021. Soybean is the second major crop in the substantial gain in total cash receipts for U.S. farms, registering an estimated 21% increase in 2021 cash receipts, jumping from US$42.0 billion in 2020 to US$50.0 billion in 2021. Soybean prices increased from US$8.95/bushel in 2020 to an estimated US$12.69/bushel in 2021. Wheat cash receipts also increased from US$9.0 billion in 2020 to US$11.0 billion in 2021 (a 25% increase), as wheat prices increased from US$4.86/bushel to US$5.97/bushel. Cash receipts for rice also showed a moderate 7% increase, up from US$2.8 billion to US$3.0 billion and cotton experienced a 6% increase from US$6.6 billion in 2020 to US$7.1 billion in 2021.
Total crop cash receipts edge up to highest level since 2010
U.S. cash crop receipts (US$ billions)
Commodity prices rise in 2021 for corn and soybeans
Commodity crop prices (US$/bushel)
The USDA is expecting fruit and tree nuts cash receipts to show a modest decline of 9% in 2021 compared to 2020. The continued easing for fruits and nut cash receipts reflects ongoing high stocks and lower prices in these permanent crops. Cash receipts for fruits and tree nuts are projected to sink to US$26 billion in 2021, which would bring them below their 2015 nominal value.
Based on the USDA’s supply and demand outlook and price forecasts for the remainder of 2021 and early 2022, farm net income and net cash income are expected to continue improving. The expanding trade in agricultural commodities between the United States and China will be the chief tailwind for these anticipated gains. China imported higher volumes of feed crops during the 2020/2021 marketing year (MY), as the country rebuilds its pig herds after the swine flu outbreak. Both soybean and corn imports by China were particularly strong in 2021, and the high demands from China resulted in tighter supplies throughout the global feed crop markets. U.S. corn outlook MY 2021/2022 is for increased feed and residual use, greater exports, larger supplies, increased corn use for ethanol, and lower ending stocks. Corn yield is expected to be a record 177.0 bushels per acre. Rice is expected to have reduced supplies, lower domestic use, unchanged exports, and smaller ending stocks. Wheat outlook is for reduced supplies, higher domestic use, reduced exports, and slightly higher ending stocks. U.S. soybean supply and use changes for 2021/2022 show lower production and exports, and higher ending stocks.
Farm net income and net cash income are expected to continue improving.
On the permanent crop side, supply and demand dynamics continue to remain sensitive to weather and yield conditions. Apple harvests remain uncertain at the time of this publication; the summer heat wave that swept through the Northwest, a major producing region for apples, created problems for production estimates. While the USDA estimated the U.S. apple crop to increase 3.0% from the 2020/2021 season, the U.S. Apple Association forecast an 8.2% decline in harvests. Wine grape production is also expected to be negatively affected by weather conditions, specifically the heat wave in Washington and drought conditions in California. In addition, smoke taints from several years of wildfires have contributed to major inventory drawdowns in wine grapes in California. On the other hand, Californian wine grape producers are still adjusting to ongoing shifts in consumer preference between different wine varieties.
Farm financial metrics
With improved income forecasts, financial stress on the U.S. farm sector is expected to ease. Farm sector equity is forecast to rise by 2.9% to US$2.81 trillion (in nominal terms) in 2021 compared to 2020. The anticipated increases in the value of real estate have boosted projected farm assets by 3% to US$3.26 trillion in 2021. Farm debt is expected to increase by US$13.00 billion in 2021 to US$454.10 billion. As a result, the farm sector debt-to-equity ratio is expected to be close to 16.2 in 2021, almost the same as in 2020. Working capital measured as cash available to fund operations after paying off the debts is forecast to increase by 9.6% in 2021. Overall, the liquidity and solvency of U.S. farmers will have improved in 2021.
Debt-to-equity ratio has increased since 2012 and is close to the 1990–2021F average
Debt-to-equity ratio
Farmland returns
The improvement of the overall health of the farm economy in 2021 is positive for farmland investors. Through the first three quarters of 2021, the NCREIF Farmland Index, a quarterly measure of investment performance of U.S. farmland properties acquired in private market for investment purposes, returned 3.89% overall and 6.13% on annual row cropland year to date.1 NCREIF’s capital return percentage, which consistently trends well with the changes in the USDA’s cropland values, have posted positive appreciation in Q2 and Q3 2021 and are forecast to end 2021 with positive gains in total farmland appreciation.
Percentage change in farmland values
Source: USDA NASS data, 2021 and NCREIF, 2021.
The improvement of the overall health of the agricultural economy in 2021 is positive for farmland investors.
Overall, the U.S. farm income forecasts for 2021 showed a clear upward movement for a wide range of the farm sector, especially positive for row crops. Looking forward, the outlook for the U.S. farm economy remains positive, while short-term risks remain due to concerns over rising input costs in a higher inflationary environment. In addition, permanent crops also face market-specific challenges in supply-demand balance. Over the long term, with increasing risks from climate change, it’s imperative for farmland managers to invest in tools and technology focused on climate change adaptation and risk mitigation.
Farmland market indicators
Global corn production to reach a new record in 2021 marketing year according to November WASDE
Annual corn production estimates, major producers (million metric tons)
Global corn production is expected to reach a new record of 1.2 billion metric tonnes, 8% higher in the 2021 marketing year, driven by gains in the United States, Argentina, and Brazil. In 2021, U.S. corn production is forecast to increase by 7% to 383 million metric tonnes (MMT), primarily driven by yield returning to trend line (Marketing year (MY) September 2021 to August 2022). Brazil 2020 (MY March 2021 to February 2022) production is estimated to decrease by 16% from MY 2019 to 87 MMT, because of dry weather causing a delay in planting of the second crop. Brazil’s 2021 marketing year (March 2022 to February 2023) production is forecast to increase by 37% to 118 MMT because of greater planting area and recovery from drought conditions. Argentina’s corn production is forecast to decline slightly to 50 MMT in the 2020 marketing year (March 2021 to February 2022) before rebounding 6% to 55 MMT in the 2021 marketing year because of improved returns for corn. China’s production is forecast to increase by 5% from last year to 273 MMT (MY May 2021 to April 2022).
Global soybean production to reach a new record in 2021 marketing year according to November WASDE
Annual soybean production estimates, major producers (million metric tons)
Global 2021 marketing year soybean production is expected to increase by 5% from the previous marketing year to 384 MMT. U.S. soybean production is forecast to increase by 5% to 120 MMT because of increases in area and average yields (MY September 2021 to August 2022). Brazilian production is forecast to increase 7% to 138 MMT in 2020 (MY February 2021 to January 2022) before increasing 4% in 2021 (MY February 2022 to January 2023) to 144 MT because of greater planted area, as Brazil’s weakened currency has made soybean production highly profitable. Argentina’s soybean production is forecast to decline by 5% in 2020 (MY April 2021 to March 2022) to 46 MMT before rebounding by 7% in 2021 (MY April 2022 to March 2023) to 50 MMT, as farmers switch from soybeans to corn for higher revenues and operational flexibilities.
USD appreciates against competing currencies
Quarterly exchange rates between USD and agricultural currencies (indexed to 1 at 2006: Q1)
The U.S. dollar appreciated in the third quarter against most competing currencies, appreciating 2% against the Canadian dollar, 3% against the Argentinian peso, 4% against the Australian dollar, and 8% against the Brazilian real but depreciating slightly against the Russian ruble. The U.S. dollar is expected to remain modest for the remainder of 2021 and going into 2022 as global economic activity revives, effective vaccines are deployed, and interest rates remain accommodative across most competing currencies.
U.S. corn exports remain at high levels
Four-quarter moving average corn exports, major producers (million metric tons)
Global corn exports fell in Q3 2021, partly due to tight corn supplies in Brazil due to dry weather conditions in the previous season. Brazil’s four-quarter moving average exports were down 20% from last year at 7 MMT and 21% lower than last quarter, as record exports in the previous year and drought conditions in the 2020 marketing year depleted Brazil’s corn stocks. A major tailwind for Brazil’s grain exports in the future is the paving of the BR-163, a highway that runs through Mato Grosso and Para, and ends at the river terminals of Miritituba, the site of several major grain trading companies. U.S. four-quarter moving average corn exports at 17 MMT were 46% higher than last year and slightly lower than the previous quarter. Argentina’s four-quarter moving average exports at 9 MMT were down 6% from last year and up 5% from last quarter. Depleted corn export quantities in Brazil as well as the depreciation in the Argentinian peso favor exports in Argentina.
U.S. soybean exports decrease in Q3 2021
Four-quarter moving average soybean exports, major producers (million metric tons)
In Q3 2021, U.S. soybean exports decreased from last quarter as a result of weaker demand from China in general and logistic issues as a result of Hurricane Ida in the Gulf region in October. On a four-quarter moving average basis, at 14 MMT, U.S. soybean exports were down 14% from last quarter but 16% higher than last year. The four-quarter moving average of Brazil soybean exports at 20 MMT was down slightly from last quarter and 11% lower than last year. Lower profitability of Chinese hog producers has decreased soybean exports to China. Argentina’s soybean exports at a four-quarter moving average of 1 MMT were up 22% from last quarter and down 48% from last year.
Prices for row crops maintain high levels
Row crop prices (USD per bushel)
In Q2 2021, U.S. corn, wheat, and soybean prices remained elevated. Corn prices rose 8% to US$6.22/bushel and were up 92% since last year. Wheat prices rose by 7% since last quarter and were up 32% from last year to US$6.70/bushel. Weaker demand from China decreased soybean prices, which fell 3% since last quarter and were still up 58% from last year, at US$13.90/bushel.
MY 2020/2021 tree nut prices mixed as markets seek balance
Annual U.S. average grower tree nut prices (USD per lb.)
MY 2020 almond (August 2020 to July 2021) prices declined because of abundant crops. The United States' almond production is estimated at 3 billion pounds for MY 2020. The California Almond Objective Measurement Report, released in July 2021, forecasts a 2.8 billion pound crop for MY 2021 as a result of California water issues. Prices have moved lower despite strong shipment numbers in MY 2020. Exports for marketing year 2020 were 31% higher than the previous marketing year’s exports. The MY 2020 walnut crop (September 2020 to August 2021) was a record crop at 785,000 tonnes. The increase in production caused walnut prices to decline by 38% to $0.61/lb in MY 2020. Walnut exports have also been strong, with MY 2020 exports up 17% from the previous marketing year. The California Walnut Objective Measurement Report, released in September 2021, forecasts walnut production to decline to 670,000 tonnes MY 2021 because of the drought in California. The pistachio crop has reached a milestone of producing the first one billion pound crop (in shell basis) in MY 2020 (September 2020 to August 2021). Abundant production weighed on pistachio prices, down slightly to $2.75/lb. Pistachio production is more concentrated, resulting in more pricing power for pistachio producers in the market than almond or walnut producers. Pistachio exports for MY 2020 were up 21% from the prior marketing year.
Q3 2021 NCREIF row crop returns highest since 2008, cash receipts to rise by 20%—highest since 2020
NCREIF row crops total return (% per year)
Source: NCREIF, September 2021. USDA cash crop receipts data is published three times a year in February, August, and November by the USDA’s Department of Agriculture Economic Research Service. The U.S. level calendar-year forecast is first published in February. The August release converts the previous year’s forecast to estimates and the November release updates the current year forecast. NCREIF Farmland Index total return data is published on a quarterly basis. NCREIF quarterly total row crop returns are aggregated to form the total return for the year. The total return as seen on the bar chart may not equal the annual total return as reported by NCREIF, because the NCREIF annual return is calculated by multiplying instead of adding quarterly returns together.
Q3 2021 NCREIF row crop returns were 2.25%, the highest Q3 quarterly return since 2008. High prices helped boost farmers’ returns and provided support for better appreciation returns. USDA farm income and wealth statistics project 2021 row crop cash receipts to rise by 24%, the largest increase in cash receipts since 2007. The year-to-date total return for NCRIEF Farmland through the first three quarters has already surpassed the annual performance of the previous six years.
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