by: Chris Zoller, Extension Educator, ANR in Tuscarawas County
The United States Department of Agriculture Economic Research Service (USDA-ERS) has announced their prediction for farm production expenses for 2020. Production expenses (see Figure 1) are projected to be reduced by 1.3 percent to $344.2 billion in nominal (non-inflation-adjusted) dollars. These expenses represent the costs of all inputs used to produce farm commodities and affect farm profitability. While overall production expenses are forecast to decrease, specific expenses vary.
Figure 1. Nominal & Inflation-Adjusted Farm Production Expenses, 1970-2020
USDA-ERS estimates expenses to increase in 2020 account for 69 percent of total expenses. The two largest expense categories, feed and labor, are expected to increase 1.4% and 3.1%, respectively. Expenses expected to decrease in 2020 account for 31 percent of all production expenses. Specific examples of expense items expected to decrease include interest expenses (27.1%), fuel and oil (13.9%), livestock and poultry purchases (7.5%), and pesticides (2.1%).
Inflation-adjusted total production expenses in 2020 are expected to be 19 percent below the record high of $427.1 billion in 2014. This will mark the sixth year of declining expenses.
Looking to 2021
While some expense items are forecast to be reduced in 2020, it is important to ask questions as you plan. Will government payments continue? I don’t suggest relying on these payments. What is the outlook for the commodities you produce? What tools are available to help you minimize risk?
As you plan for 2021, I encourage you to talk to your accountant, lender, and other advisors. Refer to the OSU Extension 2021 Budgets (https://farmoffice.osu.edu/farm-mgt-tools/farm-budgets#2021). The Ohio State University Extension Farm Business Analysis and Benchmarking Program (https://farmprofitability.osu.edu/) can also provide assistance with planning, evaluation, and decision making.
USDA-ERS, Farm production expenses forecast to decrease in 2020, the sixth year in a row. Available at: https://www.ers.usda.gov/data-products/chart-gallery/gallery/chart-detail/?chartId=99736
Article can also be viewed at: https://u.osu.edu/ohioagmanager/