A financial analyst from Indiana says the difference in the agricultural economy from 2020 to 2021 is remarkable.
Dave Widmar with Agricultural Economic Insights in West Lafayette says the economic improvement took place in a short window of time.
“We had a very bleak outlook just last summer, it’s hard to put together a list of positive things going on, and now, of course, we have a very strong outlook with a long list of positive things going for us. The big piece here is higher commodity prices: commodity prices have turned around, but that didn’t start to take place until last September, and it has played out over the last several months. The outlook wasn’t this good even six months ago, so that’s been a huge part of it, especially for corn and soybean producers.”
He says support payments to producers have also given strength to the ag economy.
“Another aspect of this has been direct payments, and just a lot of stimulus payments in the economy through direct payments to producers, PPP loans, low interest rates; all sorts of activity been going on in the farm economy.”
Coming into 2021, another benefit to the economy was a low cost of production.
“When we think about heading into 2021, we had a fairly low-cost structure in place. Of course, this narrative has been quickly changing over the last six months. Fertilizer costs, for example, were about $9 an acre in the fall of 2020, closer to $130 or $140 an acre today. We’ve seen farmland values increase, cash rental rates increase, while machinery and family living expenses are probably going to increase as well. And so, another part of the strong profitability situation here, really in 2020 but also into 2021, is a low-cost structure. Of course, that’s going to begin to unwind itself, but that’s important to recognize how we got to sort of a pretty strong situation and in such a short period of time.”
Widmar says the next USDA Farm Income Report is due in September, which will paint a clearer picture of what’s ahead.
“Where exactly the farm economy is, and where we might be heading into 2022. We have to step back and unpack that in a couple of different ways. So, the first preliminary estimate in February was lower than 2020, so 2021 would be lower than 2020 but higher than sort of the long-run average. And so, I think we have to always think about what lens are we comparing it to. It’s pretty clear that the farmer economy, all information available today, says the farm economy 2021 is going to be much stronger than the long-run average, especially that average we saw from 2016 to 2019.”
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