Farmers in Washington and across the U.S. likely will see their overall revenue drop this year after a strong 2020, which set a non-adjusted record for farm income, according to a Washington State University economist.
Randy Fortenbery, an agriculture economist at WSU, gave his annual forecast Wednesday for the Spokane Age Expo and Farm Forum, which for the first time in history went virtual in response to the coronavirus pandemic.
While higher-than-expected exports have boosted wheat prices recently, the overall outlook for area farmers doesn’t look great, Fortenbery said. Futures markets predict flat wheat prices for several years.
“Right now, 2021 looks positive,” Fortenbery said. “Maybe not quite as attractive as 2020, mostly because of a decline in government payments.”
Corn and soybean prices have spiked recently and that has boosted wheat prices as some cattle feeders consider using wheat as a cheaper alternative. However, world wheat supplies are expected to expand, which usually drives wheat prices down, he said.
“So, it’s going to be challenging to get a significant rally in the futures market for wheat unless we have some sort of serious production shortfall somewhere in the world,” he said.
Overall, U.S. farmers recorded a net income of about $140 billion in 2020. However, a good portion of that income came through federal COIVD-19 relief programs and payments to farmers for trade disruptions initiated by President Donald Trump’s administration, Fortenbery said.
The U.S. Department of Agriculture is now predicting that net farm income for 2021, which is receipts for crops and livestock minus the cost of production, will be about $128 billion.
“Really, the big decline in income from $140 billion in 2020 to the $128 billion forecast for 2021 comes from a decline in government payments, not from a collapse in commodity prices for our primary commodities,” Fortenbery said.
He noted that in 2018, Trump launched an across-the-board trade war on a scale not seen for 100 years. However, the U.S. was able to secure new trading deals with Canada, Mexico, Japan and China that already have begun to return markets to normalcy.
“China has become a much larger buyer through the Phase 1” agreement, he said. “Even without Phase 1, their purchases of feed grains, including wheat as a feed grain, have exceeded earlier expectations as they attempt to rebuild their livestock herds.”
Fortenbery said Trump initiated the trade wars to reverse a trade deficit, under which U.S. consumers import more goods than they export. When Trump began tearing up trade agreements, the U.S. had a trade deficit of about $40 trillion.
“Just as we started implementing tariff programs to bring our trading partners to the negotiation table … it got even worse,” Fortenbery said.
Even though the U.S. has negotiated new trade agreements, “the trade balance (for all sectors of the economy) has gotten even more negative,” he said. “Right now, we are sitting at sort of a record-negative trade balance” of about $68 trillion.
However, agriculture exports have expanded, he said.
“The good news for agriculture is that has not been our experience the past couple of years,” Fortenbery said. “In fact, by October 2020, our monthly agricultural surplus in trade has gotten back to the levels we had in 2015 and 2016 before we went through the trade realignment.”
The biggest difference for ag exports has been China, he said.
“Right now, the USDA is anticipating for the 2021 fiscal year China could represent a total of 25% of total U.S. agricultural export volume,” Fortenbery said. “It won’t be nearly that big for wheat, but it will be big overall, and that’s very positive.
According to figures from 2019, which were the most recent available, Fortenbery said the state of Washington ranked 12th in the nation with about $9.3 billion in agriculture sales, and it ranked fifth overall with just less than $3 billion in net farm income.
Apples continue to be the state’s No. 1 crop, with about $2 billion in revenue, followed by dairy products, cattle, potatoes and wheat.
Fortenbery said wheat can come in as high as third or as low as fifth on the list, depending on production and annual prices.
Apple exports expanded in 2020 after the U.S. ratified the new trade agreement with Canada and Mexico in a deal that replaced the North American Free Trade Agreement.
“Like almost all Washington crops, the apple crop in Washington is very dependent to access to international markets,” Fortenbery said. “Trade is very critical. In 2019, 46% of our apple crop went to Canada and Mexico combined.”
As for wheat, Fortenbery said about 45% of the U.S. crop and 90% of the Washington crop are exported. While the U.S. remains a major player on the world stage, it’s overall market share continues to decline compared with the European Union and Russia.
Local wheat prices “will be constrained by what happens in the national market,” he said.
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