Off-farm Income: A 2020 Ag Economic Wildcard

farm at sunset ( Jeanne Bernick )

It often is believed there is a direct, inverse relationship between the agricultural economy and the U.S. economy as a whole. The idea goes that the ag economy struggles while the large economy booms, and vice-versa. That potential relationship, however, doesn’t play out cleanly for farm households, which often rely on both on-farm and off-farm income.

It’s an even more tangled web in 2020, as U.S. farmers navigate the double-whammy of plummeting farm income and a spike in the U.S. unemployment rate, according to agricultural economist David Widmar. Along with fellow Purdue economist Brent Gloy, Widmar publishes Agricultural Economics Insights, a weekly blog covering ag economic outlooks and trends.

Widmar said only about 8% of U.S. farms gleaned appreciable income from profits generated by the farming enterprise in 2018. USDA breaks farms into three income classifications, which in 2018 showed the following revenue and profit data:

  1. Residence farms – These “lifestyle” farms are homes to off-farm workers who as a whole do not operate their farms as a business. They make up 54% of all U.S. farms. 

                                                                        2018 total income:                    $118,846

                                                                        2018 net farm income:              $   -2,694 

  1. Intermediate farms – Enterprises primarily engaged in farming, with less than $350,000 gross cash sales. They represent 38% of all U.S. farms.

                                                                        2018 total income:                    $ 62,683

                                                                        2018 net farm income:             $   1,914

  1. Commercial farms – Farm businesses that generate more than $350,000 in annual gross sales, making up just 8% of all U.S. farms.

                                                                        2018 total income:                    $298,848

                                                                        2018 net farm income:             $227,194

Widmar noted that even “Commercial” farms rely on a significant amount of off-farm income ($71,654 in 2018). “For most producers, and especially those in the “Residence” and “Intermediate” categories, off-farm income is an important source of funds for satisfying all of their financial obligations,” he said. “That includes family living expenses and the principle portion of debt service obligations.”

When plotted against farm loan delinquency data, Widmar observed that, in recent years, the number of delinquent loans rose significantly in periods when unemployment was higher and thus off-farm employment was less available. During the Great Recession of 2008-2009, for example, high unemployment correlated with a spike in delinquent farm loans, which almost doubled at that same time. By 2014, off-farm income had peaked to recent highs, while delinquent farm loans dropped to approximately 10-year lows in the same time period.

Widmar is concerned that high unemployment and thus falling off-farm income may create a second wave of pain for American farmers amidst the current global pandemic. Coupled with this worry is the fact that many farms depend on health insurance benefits provided by off-farm jobs as a significant expense control. 

“Unemployment during the Great Recession peaked at 10.0% in October 2009,” stated Widmar. “Currently, the most recent unemployment rate data is 14.7%. The farm economy already was in a precarious situation heading into 2020, and significant challenges could be ahead.”