See more of the story

U.S. farm income is forecast to fall by 9% in 2020 due to rising expenses, lower government payments and ultralow prices for corn and soybeans, the nation's biggest crops.

That decline will happen even though farm revenue is projected to rise 2.7%, according to data released this week by the U.S. Department of Agriculture.

"That increase in cash receipts is expected to be eclipsed by the drop in government payments, because we're looking at a drop in government payments for the sector as a whole of almost $9 billion," Carrie Litkowski, a USDA economist, said. "On top of that, we're forecasting an increase in cash expenses."

The department's forecast assumes that the Market Facilitation Program, the USDA's trade-war bailout that shored up farms across the country, will wind down. Direct government payments to farmers spiked in 2019 thanks to $14.3 billion in trade aid, but the agency forecasts only $3.7 billion in payments in 2020 because the U.S. and China settled some of the dispute. China on Thursday confirmed that next week it would reduce its tariff rate on U.S. soybeans and pork to 5% from 10%, a step that should lead to greater purchasing of U.S. farm products and reduce the need for the MFP bailout.

"We are assuming in this forecast that these will be the final MFP payments in 2020," Litkowski said.

The profitability of farms will vary by type, the USDA's data showed.

Its forecast assumes corn and soybean prices will remain low or drop further. Soybean revenue will drop by about $1 billion, or 2.5%, because there are fewer soybeans to sell, and corn revenue will rise by about $1 billion, or 2.1%, because of the abundance of that commodity.

Dairy, beef and hog farm revenue is expected to grow. Milk revenue should rise by about $2.1 billion, or 1.6%, and hog revenue should rise $4.2 billion, or 18.4%, "reflecting both higher prices and quantities sold," the agency said.

Feed, labor, seed, pesticide, fertilizer and fuel expenses are all expected to rise in 2020.

Farmers in southwest Minnesota and eastern South Dakota are being asked to cut costs, said Jeff Hoover, a banker at Minnwest Bank in Marshall, one of the largest ag lenders in the state.

"It certainly seems that the market wants to pay $3½ for corn and $8½ for soybeans, so we've got to lower our cost structures so we can scratch out a living," Hoover said.

Low interest rates are keeping land prices high, because they keep the debt service on a land purchase down and preserve some return on the land after the monthly land payment. That has been a boon for farmers.

But the strong dollar is hurting U.S. corn and soybean prices and there's simply too much supply of those two row crops.

"It's not just the trade war," Hoover said. "It's a supply issue."

Adam Belz • 612-673-4405 Twitter: @adambelz