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NEW AG ECONOMIST'S REPORT: FARM-LEVEL IMPLICATION OF MFP PAYMENTS
Nov. 11, 2019
Source: blog by David Widmar, Agricultural Economic Insight
To view the complete report, click here.
After the USDA and White House announced the 2019 MFP program, we noted that direct government payments were set to soar in 2019. The USDA's most recent estimate is for $19.5 billion in total direct farm payments is more than $5.5 billion higher than 2018. For context, the USDA's initial estimated 2019 direct payments $2.5 billion below 2018 levels. This week's post is an updated look at direct payment trends and farm-level implications.
Direct Payments
Figure 1 shows real, or inflation-adjusted, direct farm payments since 1933 (2019=100). As many would expect, 2019's current estimate of $19 billion is well above recent levels. Specifically, over the previous decade (2009 - 2018) real direct payments averaged $12.7 billion, and never exceeded $15 billion.
While $19 billion is high for recent memory, inflation-adjusted direct payments have exceeded $20 billion multiple times in history. In fact, direct payments exceeded $30 billion as recently as 2005.
Don't be surprised to hear total direct payments in 2019 exceed $20 billion before the years is over. The current 2019 estimate includes the first tranche of MFP payments, but the USDA has all but promised another round of payments made in 2019. Those second-round 2019 payments total will be in addition to current MFP and direct payment estimates.
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| Figure 1. Real U.S. Direct Farm Payments, 1933-2019F (2019=100). Data Source: USDA’s ERS (August 2019).
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Another consideration is how large direct payments are relative to net farm income. Figure 2 shows these data since 1933. When farm incomes were recently high, direct payments equaling 10% of net farm income. As farm income fell, direct payments played a more significant role.
The current USDA data indicates direct payments will equal 22% of net farm income. Similar to the trends in Figure 1, current levels are high for recent memory but are not record-breaking. In the late 1990s and early 2000s, direct payments frequently exceeded 30% of net farm income. During the Farm Financial Crisis of the 1980s, direct payments reached 65% of net farm income in 1983.
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| Figure 2. Direct Farm Payments as a Share of Net Farm Income, 1933- 2019. Data Source: USDA ERS.
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