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In a recent post summarizing overlooked insights from the latest net farm income data, we noted that commodity and regional variations are important to consider. As part of the USDA’s recent release, state-level estimates through 2019 were included. This week’s post takes a geographical look at state-level net farm income and direct payment trends.
State-Level Net Farm Income
In recent years, the farm economy has struggled with the downturn in net farm income. At the national-level, net farm income peaked at an average of $126 billion from 2011 to 2013. More recently, net farm income from 2018-2019 averaged just $84 billion. The adjustment from boom-era levels is a 33% decline in real net farm income.
State-level trends in net farm income vary considerably. Figure 1 shows the changes in net farm income from the boom-era (average of 2011-2013) with the most recent state-level data (average of 2018-2019).
While the sector average change was a 33% decline, the state-level changes have varied from -68% (Minnesota) to +18% (Nevada). Broadly speaking, the Northern Plains and Midwest states have been hardest hit as producers faced the largest contractions in net farm income. In these states, the decline has been larger than the national average.
Outside of the major of corn and soybean producing regions, the state-level income changes have been less severe. In the Southeast, farm income in most states contracted less than the national average. Some states – Alabama, Mississippi, Florida, and several in the West – have experienced higher net farm income recently.
Figure 1. Change in State-Level Net Farm Incomes, Average of 2018-2019 compared to Average of 2011-2013. Data Source: USDA ERS and aei.ag calculations.
Direct Payments and Net Farm Income
The second national-level data point that has captured attention is direct payments as a share of net farm incomes. For 2020, the current national data show direct payments will be equal to 36% of net farm income (likely to turn higher in light of CFAP2). Direct payments in 2020 are up from an average of 22% from 2018-2019. For additional context, it was common for direct payments to account for around 10% of net farm income during the farm economy boom.
Figure 2 shows direct payments as a share of net farm income at the state level. Specifically, the data are the average for 2018-2019, so one could expect these will be even higher once the 2020 data are released next year.
Compared to the national data (22% average for 2018-2019), there are again significant differences. Like before, direct payments as a share of net farm income stand in the Midwest and Northern Plains. For the I-State, direct payments account for 37% (Iowa), 42% (Illinois), and 34% (Indiana) of net farm income. Direct payments were more than half of net farm income in Arkansas (59%), Minnesota (53%), and North Dakota (50%).
There are a few things to keep in mind here. Direct payments as a share of net farm income can be affected by a combination of 1) changes in net farm income and 2) change in direct payments. For the data below, lower net farm income and higher direct payments dominate the observations in most states. While not shown in the data or this article, direct farm payments in some states have more than doubled since the 2011-2013 time period.
Direct payments account for a much smaller share of net farm income in the Northeast, West, and – to a degree – Southeast.
Figure 2. Direct Payments as a Share of Net Farm Income (Average of 2018-2019).
Wrapping it Up
The key idea is that nation-wide farm economy data is an aggregation of the conditions individual producers face. While the farm economy has contracted in recent years, the effects have not been uniform across producers. State-level data begin to capture the variation and highlight some of the regional variations.
We often get emails from readers with comments about their observations being different than the national trends – worse or better. These data support those observations as the national data understate the magnitude of the recent contraction in some regions (Northern Plains, Midwest), but overstate the magnitude of contractions in others (Southeast, West).
Similarly, the uptick in direct payments also vary. Direct payments account for a much larger share of net farm income in the Midwest, Plains, and Delta states.
The longer version of this article (here) considers where farm incomes increased during the boom years, how current farm income compares to the early 2000s, and state-level changes in direct farm payments.