COVID-19 Ag Income Impacts

FAPRI Projects $20 Billion Net Decline in Farm Income for 2020

Chris Clayton
By  Chris Clayton , DTN Ag Policy Editor
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The Food and Agricultural Policy Research Institute updated its numbers for crops and livestock prices due to impacts from COVID-19. The analysis shows price declines and lower demand for every sector of agriculture. (Charts from FAPRI analysis)

GLENWOOD, Iowa (DTN) -- An updated economic analysis looking at the impact of COVID-19 projects crop farmers to see $11.85 billion in lower revenue in 2020 and all livestock sectors combined to see a $20.24 billion drop in receipts for the year.

The early partial analysis by the University of Missouri's Food & Agricultural Policy Research Institute (FAPRI) shows a potential overall $32.09 billion drop in cash receipts for crops and livestock. That leads to net farm income for 2020 dropping by $20 billion once lower input prices and higher government payments are included in the analysis.

Looking at the 2020-21 crops, FAPRI is projecting a 5% to 10% drop in grain and oilseed prices. FAPRI also sees an 8% to 12% drop in livestock prices for 2020.

The FAPRI analysis comes as USDA is working on an aid package for farmers and ranchers in response to the initial market collapses tied to the coronavirus. Agriculture Secretary Sonny Perdue on Friday retweeted President Donald Trump's statement to "expedite help to our farmers" with Perdue stating USDA is working to "develop a program that will include direct payments to farmers & ranchers hurt by COVID-19 ..."

Nationally, FAPRI noted, the key unknown now is whether the coronavirus creates a "V-shaped" recession with quick market recovery or an economic disruption that lasts longer and carries into 2021.

"The speed and duration of the recovery are also a source of great uncertainty, however, and the GDP levels for 2021 and perhaps later could continue to be below levels forecast before the emergence of COVID-19," FAPRI noted. It may take consumers much longer to recover, and that will affect manufacturing, energy and agriculture.

COVID-19 has already turned upside down every macroeconomic baseline from early in the year. Initial forecasts plugged in that real consumer spending nationally would grow 2.8% in 2020, but that has now flipped to a projection of a 5% decline for the year. The change also reflects consumer spending on food and beverage will now be 2.5% lower in 2020 and 1% lower next year.

Looking simply at the COVID-19 impacts -- outside of other considerations -- the FAPRI baseline prices for the 2019-20 crops states that the impact on crop prices is limited because most production was already marketed before the crisis hit. This is especially true for wheat, FAPRI stated.

Among the more underestimated numbers in the FAPRI analysis are government payments. Looking solely at farm-bill programs, FAPRI projected $2.3 billion more in government payments for 2020 and $4.49 billion for 2021. The stimulus bill passed at the end of March includes $9.5 billion in aid for livestock, specialty crops and other sectors, along with a $14 billion boost in the Commodity Credit Corp.

Overall, cash receipts for crop farmers are projected to fall $11.85 billion for the calendar year 2020 and another $7.27 billion in 2021.

USDA's next major supply-and-demand analysis, along with price forecast for the 2020-21 crop, will come with the May 12 monthly World Agricultural Supply and Demand Estimates (WASDE) report.

Looking at the FAPRI estimates by commodity:

-- CORN: The FAPRI move shifts corn from a baseline price of $3.70 a bushel to a 2020-21 projection of $3.35 a bushel. USDA in February -- before the country effectively shut down -- put the average corn price for the 2020-21 crop at $3.60 a bushel.

FAPRI pointed out the corn price decline was largely tied to a reduction in ethanol production. USDA last week lowered corn for ethanol use by 375 million bushels last week. FAPRI forecasts roughly a 1.4-billion-gallon reduction in ethanol production for 2020.

-- SOYBEANS: FAPRI drops the 2020-21 soybean price baseline from $8.85 a bushel to $8.27 a bushel. USDA in February had projected an average $8.80 a bushel price.

-- WHEAT: FAPRI also lowers wheat prices for 2020-21 from $4.84 a bushel down to $4.58. USDA in February had put the 2020-21 all-wheat price at $4.90 a bushel.

-- LIVESTOCK: For livestock, the 2020 average price for five-area steers is projected to see a $14.04 cwt decline to $108.06 cwt. Hogs are projected to see a $4.83 average drop to $48.33. All milk prices are projected to drop $1.71 per cwt to $17.75 per cwt. It should be noted that all of these livestock sectors are seeing sharper price declines than the average yearly forecast by FAPRI.

Cash receipts for the entire livestock sector are projected to drop $20.24 billion this year and another $2.68 billion for 2021, FAPRI estimated. The lower income figures are offset somewhat by $2.82 billion less in feed costs for 2020 and $3.83 billion in lower costs to buy livestock this year as well.

FAPRI's price projections on livestock also largely only looked at weaker consumer demand due to lower incomes. It did not factor in supply chain concerns that are now hitting the entire livestock industry.

FAPRI's full analysis can be viewed at….

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Chris Clayton