2021 Economic Situation & 2022 Outlook


Agriculture, like many industries, has been challenged by a multitude of factors over the past 18 months including a relentless and ongoing global health pandemic, an initial meltdown of the global economy, major supply chain disruptions, continued trade tension, soaring inflation amidst higher energy, labor, and food costs, labor supply challenges, and major adverse weather events. Despite these impactful events, the U.S. farm economy has not only survived, but experienced remarkable growth, initially on the heels of significant government financial support, followed by strong export gains, impressive crop yields, and a growing global demand for meat products. In 2020, USDA claims that net farm income increased nearly 20%, with government payments comprising close to one-half of net farm income. For 2021, USDA is projecting an additional 23% gain in net farm income, which, if realized, would be the second-highest net farm income on record and the sixth-highest over the past fifty years when adjusted for inflation.

Direct government payments to U.S. farmers totaled a record $45.7 billion in 2020. Most of the payments were from the Coronavirus Food Assistance Program (CFAP) to assist farmers from COVID-19-induced price declines and the Market Facilitation Program (MFP) to compensate farmers from losses evolving from the trade wars. Government farm payments are projected to decline 40% in 2021, but are still projected by USDA to comprise around one-quarter of net farm income.

Accounting for both higher commodity prices and larger trade volumes, U.S. farm exports will likely end 2021 at record high levels of approximately $175 billion, following surprising growth in 2020. While most of the gains in U.S. ag exports in 2020 could be attributed to one market –China, and a few commodities – primarily corn, soybeans, and pork, export gains in 2021 were strong among most all of our major trading partners and across most ag commodities. Through October 2021, the value of U.S. corn exports has more than doubled, while U.S. beef exports are up 38%, forest products +28%, poultry +24%, dairy 18%, wheat +17%, soybeans +10%, and pork +8%. China remains the leading export market for U.S. agriculture, but the ag sector experienced strong demand in 2021 for U.S. ag commodities and food products from import markets like Mexico, Canada, Japan, and several other nations in Southeast Asia.

As a result of an improving farm economy, the U.S. farm balance reversed some concerning issues that surfaced from the economic downturn experienced in 2015-2019. Higher net farm income and continued low interest rates boosted land and other asset values in 2021, leading to improvements in many financial ratios, along with strengthening working capital, liquidity, and cash flow levels.

As for Kentucky, impressive grain crop yields, higher crop/livestock prices, and a strong equine market this past year are projected to boost Kentucky ag cash receipts to an estimated $6.75 billion in 2021, surpassing the record-high $6.5 billion set in 2014 and considerably higher than the $5.5 billion average over the past five years (2016-2020). Potential record-high state yields for corn and soybeans, coupled with strong market prices will enable these grain crops to rival poultry as Kentucky’s leading ag commodity for 2021.

Similar to the national trend, the government payments to Kentucky farmers will be significantly lower in 2021 versus 2020 when they approached nearly $700 million compared to an average of $183 million from 2015-2019. Despite much lower government payments and increased production costs, higher cash receipts will likely enable Kentucky net farm income to approach $2.5 billion in 2021, compared to averaging $1.7 billion for the proceeding five-year period.

U.S./Kentucky farmers will enter 2022 with commodity prices much higher than those recorded prior to the Covid-19 pandemic. Despite favorable commodity prices, the main concern confronting farmers as they begin planning for 2022 will be escalating farm input prices. After multiple years of relatively modest changes in farm input costs, farmers are bracing for the potential of double-digit percentage hikes in their overall cost of production, with much higher fuel, feed and fertilizer prices anticipated. Labor costs and supplies remain troublesome for not only farmers, but throughout the entire ag/food supply chain as well as the rest of the economy. Interest rates are still expected to remain relatively low for farmers in 2022, however, spiraling inflation may induce the Federal Reserve to take action to restrict money supplies and consequently boost interest rates to cool down inflation.

U.S. ag trade is expected to remain fairly robust in 2022, but this depends a lot on crop development in South America, how China responds following the ending of the two-year Phase I trade agreement signed in January 2020, and the outcome of the global economy amidst on-going COVID concerns and supply chain issues. In aggregate, the U.S./Kentucky farm economy still has a positive outlook for 2022, but profit margins are expected to narrow compared to 2021. Consequently, farmers will be advised to monitor input and commodity markets closely in developing purchasing and marketing strategies amidst this turbulent, volatile, and uncertain farm economy.


U.S. and Kentucky Farm Economy Exhibit 1


U.S. and Kentucky Farm Economy Exhibit 2


U.S. and Kentucky Farm Economy Exhibit 3


2021 Situation 

Beef production was on track to reach its peak in 2020, but COVID-related processing challenges pushed some of that production in 2021. So, the supply of slaughter cattle was high for the first half of the year and fed cattle prices struggled. Finally in the fall, feedlots appeared to get more current and fed cattle prices rallied sharply. Beef export pace was also very swift for the year and should set an annual record by the time we turn the page on 2021.

In Kentucky, heavy feeder cattle prices improved a great deal through summer and fall and have been running over $10 per cwt above 2020 levels since July. The calf market has been the slowest to show improvement, but winter is always a challenging time to build momentum in calf markets. At the time of this writing (early December 2021), spring CME© feeder cattle futures contracts were trading in the upper $160’s. Despite the high feed prices, those spring price levels suggest potential for winter backgrounding programs at current calf prices.


2021-2022 Ag Economic Situation and Outlook | Beef | Exhibit 1


2022 Outlook

While COVID and the macroeconomy remain wildcards going forward, there is reason for optimism in 2022. It appears that we have moved through the largest fed cattle supplies of this cattle cycle and the cowherd continues to get smaller. Based on beef cow slaughter and heifer retention estimates, beef cow inventory should be down around 2% for the year. It is likely that we will see our best spring calf market since 2016. At the same time, feedlot preference will still be to place heavier cattle given high feed prices. This will keep value of gain high and should lead to good returns for growing operations, especially summer stockers. 


2021-2022 Ag Economic Situation and Outlook | Beef | Exhibit 2

2021 Situation 

Significant recovery was seen in broiler values, beginning in the fall of 2020 and continuing into 2021. Price improvement was seen across most all products, notably for breasts and wings, with wings reaching record highs. Year over year, the composite broiler value is up by more than 35%. Production for the year is likely going to be about 1% higher, which is less than normal for the broiler sector. The ice storm across the Southern region in February, and another sizeable decrease in production around Memorial Day, partially explain the slower than normal growth for the year. Both these impacts are clearly visible on the broiler production chart.


2022 Outlook

The price improvement that has been seen across the broiler sector has worked to strengthen the overall industry and is likely to remain steady in 2022. However, it does appear that production growth in the sector will be more moderate next year, comparable to what was seen in 2021. It is likely that some of this may be labor related as 2-3% annual increases in broiler production have been common in recent years. Regardless, the industry seems stable and opportunities for Kentucky producers will remain.


2021-2022 Ag Economic Situation and Outlook | Broilers | Exhibit 1


2021-2022 Ag Economic Situation and Outlook | Broilers | Exhibit 2

2021 Situation 

Equine markets made a very impressive recovery in 2021, far exceeding most expectations early in the year. After being down 30% in 2020, annual sales receipts at Keeneland rose by 35% for the year. Given the COVID impacts on markets in 2020, it is likely that 2019 is a better year for comparison. Compared to two years ago, this year’s sales levels were off just 3.5% on considerably fewer horses being sold. It is worth noting that the sale average was higher in both the September yearling and November breeding stock sales than in 2019.


2022 Outlook

While it would be unrealistic to expect another year-over-year increase in magnitude like was seen in 2021, it certainly appears that equine markets are on firm footing. General recovery from COVID should continue, as should the impact of historical horse race (HHR) gaming on purses, which likely impacts values. These same factors should also impact stud fees in the upcoming season, which are another significant contributor to Kentucky equine receipts. While strong stud fees may be partially offset by a slight decrease in the number of mares bred in 2022, a moderate increase in equine receipts at the state level would appear likely.


2021-2022 Ag Economic Situation and Outlook | Equine| Exhibit 1

2021 Situation 

Dairy cow inventory was growing as we entered 2021 and didn’t start to decrease until May. So, milk production was up for the year, especially during the second quarter. The U.S. All Milk price should average a little over $18 per cwt, which is not far from 2020 levels. Prices have been less volatile and the relationship between class III and class IV milk has been more normal. But, the story of 2021 is really less about milk price and more about feed costs, which are impacting dairy margins. To put this in perspective, from August 2020 to August 2021, the estimated ration cost for the Dairy Margin Coverage (DMC) program increased by $4.48 per cwt of milk produced.


2022 Outlook

Dairy cow numbers in 2022 should be comparable to what was seen in 2021. However, productivity gains are likely to result in about a 1% increase in milk production across the U.S. Kentucky farm level milk prices should average higher for the year in 2022, exceeding $20. However, feed prices are likely to continue to be the lead story. With feed prices at current levels, $20 milk will feel more like $16 milk and profitability concerns will remain, especially for smaller scale dairy operations.


2021-2022 Ag Economic Situation and Outlook | Dairy| Exhibit 1

2021 Situation 

In a lot of ways, 2021 looks like the 2020 that was expected for the hog market, had it not been for COVID-19. Production was actually down from 2020, but demand was strong, resulting in the strongest hog market we had seen since 2014. Eastern Corn Belt market formula hog prices will average in the low $90’s for the year, on a carcass weight basis, and were above $100 per cwt from April to August. Like all of the livestock sector, profitability was greatly impacted by feed costs, making overall price levels a bit misleading without that context. Expansion of contract hog production in Kentucky continued to grow.


2022 Outlook

Pork production for 2022 should be comparable to 2021. However, it continues to appear that China is rebuilding their hog inventory. Pork exports to China were down 37% for the first nine month of 2021, compared to the same period in 2020, and that is likely to continue into 2022. Hog prices should moderate, but remain at relatively high levels, from a historical perspective. But, as with all livestock species, feed prices for the coming year will reduce profitability.


2021-2022 Ag Economic Situation and Outlook | Swine| Exhibit 1


2021 Situation 

Total production for the 2021 corn crop is projected to be 5% higher than the five-year average.  Corn use for ethanol production is projected to be back at the five-year average after dipping in 2020 due to COVID.  Livestock feed use is projected to increase 2%, and exports are projected to increase 10% compared to the five-year average.  Given these changes and that initial stocks started out the marketing year at low levels, the USDA is projecting a 24% decrease ending stocks over the five-year average, pushing the expected US on-farm corn price up to $5.45/bu for the 2021-22 marketing year.  In Kentucky, corn prices are $5.50-5.75/bu as of late-November, with forward contract prices jumping to $5.65-5.90/bu this winter in our better markets.  


2022 Outlook 

2022 harvest contract corn futures are up $1.50/bu from expectations a year ago, resulting in forward contract pricing of $5.00-5.30/bu for the 2022 new crop delivery.  This would be an increase of approximately $260/acre for 175 bu/acre corn crop.  Fertilizer prices have increased dramatically for the 2022 crop, resulting in approximately $100-125/acre increase over fertilizer prices for the 2021 corn crop.  

2021 Situation 

Total production for the 2021 soybean crop is projected to be 6% higher than the five-year average.  U.S. soybean use is projected to be 6% higher than the five-year average, while soybean exports are projected to be 3% higher than the five-year average.  The effect of these changes combined with low levels of initial stocks would be a 30% drop in soybean ending stocks over the 5-year average, pushing the expected U.S. on-farm soybean price up to $12.10/bu for the 2021-22 marketing year.  In Kentucky, soybean prices are $12.20-12.45/bu as of late-November, with forward contract prices $12.25-12.50/bu this winter in our better markets.  


2022 Outlook 

2022 harvest contract soybean futures are up $2.35/bu from expectations a year ago, resulting in forward contract pricing of $11.70-12.00/bu for the 2022 new crop delivery.  This would be an increase of approximately $130/acre for 55 bu/acre soybean crop.  Fertilizer prices are up approximately $20-30/acre increase over prices for the 2021 soybean crop.  

2021 Situation 

Soft Red Winter Wheat production in 2021 increased 26% compared to the 5-year average.  However, when combined with extremely low initial stocks, the resulting available supply going into the marketing year is down 3% from the 5-year average.  Domestic use is projected to be up 12% and exports up 28%, for a total use increase of 17% over the 5-year average.  Combined with the available supply, the resulting ending stocks are projected to be down 42% compared to the 5-year average.  This has led to steep increases in price.  In Kentucky, cash prices as of late-November are around $7.50-7.90/bu.  Forward contract new crop prices (June/July) for 2022 in Kentucky are around $7.40-7.75/bu.


2022 Outlook 

2022 harvest contract wheat futures are up $2.00/bu from expectations a year ago, resulting in forward contract pricing of $7.40-7.75/bu for the 2022 new crop delivery.  This would be an increase of approximately $150/acre for 75 bu/acre wheat crop.  

Specialty Crops/Forestry

2021 Situation 

Kentucky’s tobacco production is forecast by USDA to be 5% higher in 2021 on the heels of increased dark tobacco production.  Burley production (down 5% in Kentucky and 4% nationally) was plagued with excessive rainfall in certain areas continuing the trend of disappointing yields in recent years.  Demand for U.S. burley continues to fall as less expensive foreign leaf has induced U.S. burley exports to plummet while the burley import share continues to rise.  After a year of fairly stable cigarette sales in 2020, U.S. cigarette consumption declines have accelerated in 2021 (down 7% as of late November), exceeding annual pre-COVID declines. Alternatively, dark tobacco demand continues to benefit from stable smokeless tobacco sales coupled with virtually non-existent foreign competition. Plus, the quality of the 2021 dark tobacco crop is described as “one of the best in years.” Prices for the smaller 2021 burley crop may average around $2.05/lb (vs $2.00/lb in 2020), with a fairly wide range of prices offered by the various tobacco companies. Dark tobacco prices for the 2021 crop remained relatively stable --mid $2.40s for dark air and mid $2.70s for dark fire-cured.  In aggregate, the value of Kentucky tobacco production will total around $250 million compared to averaging $295 million over the past three years, with dark tobacco approaching one-half of the total value of the state’s tobacco crop.


2022 Outlook

Declining profit margins, labor challenges, and GAP requirements will likely continue to erode the grower base, but the decline in the number of farms growing tobacco may begin to stabilize in 2022.  Despite declining demand, burley growers may not see much change in contract volume for 2022 coming off an anticipated short 2021 crop. The dark tobacco sector has made some supply adjustments in recent years to establish a more manageable supply/demand balance. Thus, the outcome for 2022 contract volume for dark tobacco growers will depend greatly on whether the relatively large 2021 crop forecast by USDA (72.3 million lbs nationally, or a 19% increase from 2020) actually materializes and company expectations of how future product sales may change amidst continued uncertainty on regulations, taxes, and emerging alternative tobacco product sales.   


2021-2022 Ag Economic Situation and Outlook | Tobacco | Exhibit 1


2021 Situation 

The hemp industry continues to struggle to find its balance in the agricultural economy.  As expected, the industry is still working through hemp inventories produced in 2019 and 2020, which have continued to suppress farm gate prices and significantly limited producers’ interest in growing the crop.  In Kentucky, 1,675 acres of hemp were harvested in 2021 representing a 63% decrease over 2020. This decrease is consistent with hemp acreages across the U.S.  Hemp production destined for the CBD market continues to dominate with 90% of Kentucky’s 2021 acres grown for this purpose.  Seed/grain production decreased from 4% to 2.5% from 2020 to 2021 while hemp grown for fiber almost doubled, from 4% to 7.5%, over the same period.   


2022 Outlook

Uncertainty around regulations, specifically THC content, approval for use in pet and livestock feed, inconsistent smokeable laws between states, and FDA approval continue to hinder growth in the hemp sector. Some processors continue to explore new marketing channels by focusing on cannabinoids other than CBD (i.e. CBG, CBN, etc.) or other THC attributes (i.e. delta 8,10).  However, significant increases in hemp production are not expected until current stocks are processed (or destroyed because of storage issues) or demand shifts.  Significant financial losses incurred by many hemp producers in the previous years will likely continue to deter production until market economics stabilize.  Hemp continues to be a small sector of agriculture that still has a ways to go before stability is realized.  In the meantime, hemp production continues to be risky and rife with uncertainty.    


2021-2022 Ag Economic Situation and Outlook | Hemp | Exhibit 1

2021 Situation 

Higher prices and good yields in specialty crops, which includes produce and nursery, will likely allow the sector to exceed the record revenues of 2020, but rising input costs will limit profitability and sector growth. 2021 cash receipts are expected to be at least $16 million for fruit, $44 million for vegetables and $118 million for nursery and greenhouse production. 


2022 Outlook

Strong competitive pressures will continue from outside of the U.S. in the produce market. While Kentucky growers benefit from strong local demand, and strong local prices may remain in direct markets, import supply will continue to rise. Labor costs are a big constraint for this sector. Covid impacts have been challenging for a sector that typically has 30-40% of its production costs connected to labor.

The outlook for 2022 will continue to hinge on strong demand for local specialty crops. Recovering restaurants and other wholesale channels, including the produce auctions, will help support continued strong markets in direct-to-consumer platforms. Garden center demand in Kentucky will be expected to keep pace with the strong growth nationally, which includes a strong home improvement sector and consumer spending.


2021-2022 Ag Economic Situation and Outlook | Hort | Exhibit 1

2021 Situation 

2021 saw a sharp recovery in demand for hardwood timber and associated products compared to the soft markets experienced in 2019 and 2020. The uptick in domestic demand for wood products that caused substantial price increases in softwood construction products finally reached hardwood markets.

Kentucky has benefited as prices for Kentucky’s lumber have climbed dramatically in the first 6 months and remained stable throughout the year. Demand has outstripped supply across all species resulting in a 71% increase in hardwood lumber prices. The figure shows the unprecedented increase in prices for important species from November 2020 to November 2021. The increase in lumber price has direct bearing upon log prices resulting in a sellers markets for timber with landowners experiencing increases in stumpage value across the commonwealth.


2022 Outlook

Current lumber and timber demand will continue into 2022. Relatively high prices for tie logs used in manufacturing railway cross-ties, stave logs for barrel production, along with lumber logs is expected to continue resulting in higher prices paid for hardwood timber especially white oak, black walnut and yellow-poplar.

The uptick in demand resulted in an estimated overall economic contribution from the forest sector to Kentucky’s economy slightly shy of 14 billion dollars in 2021 with projected improvement in 2022. Exports are also expected to increase as the pandemic wanes and tariffs on wood exports to China are no longer in play. Unfortunately, historical pulpwood markets in southeast and western Kentucky have evaporated with the closing or restructuring of paper mills in Kentucky and Tennessee. While supply chain issues and labor shortages will continue to plague the industry, domestic demand should remain high, providing opportunities for landowners selling timber in 2022.


2021-2022 Ag Economic Situation and Outlook | Forestry | Exhibit 1

Download pdf

Recommended Citation Format:
Burdine, K., G. Halich, T. Mark, J. Pierce, J. Shepherd, J. Shockley, W. Snell, J. Stowe, J. Stringer, and T. Woods. “Ag Economic Situation and Outlook: U.S. and Kentucky.” Department of Agricultural Economics, University of Kentucky, December 14th, 2021.

Economic Outlook Archives

Following several years of depressed commodity prices, trade wars, and challenging financial conditions, 2020 was setting up to be a critical year for the U.S. agricultural economy. On the verge of completion of three major trade agreements (China, USMCA, and Japan), a slowing, but growing world economy, and continued low production expenses, there was some optimism among farmers and ag markets entering 2020 … then COVID-19 hit. Like most businesses, agriculture did not escape the gyrations caused by COVID-19.  Plant shutdowns, restaurant/school closings, supply chain disruptions, panic buying, labor uncertainties, and continued trade disputes, were just a few items that led to a wild ride for the ag economy with prices for most farm commodities falling 10-25% or more during the second quarter of 2020.

In response to this crisis, Congress debated various economic stimulus packages, which included funding for agriculture. In total, USDA is projecting that U.S. farmers will receive $46.5 billion of government assistance from two rounds of Coronavirus Food Assistance Program (CFAP) packages, the completion of 2019 Market Facilitation Program (MFP) payments, the Paycheck Protection Program (PPP) and regular farm bill programs (PLC, ARC, conservation) which may account for nearly 40%f of net farm income in 2020. Currently, USDA is forecasting that 2020 Net Farm Income will total $119.6 billion, 43.1% above 2019 levels.  Adjusted for inflation, U.S. net farm income will be at its highest level since 2014 and well above the 20 year average. Cash receipts are projected to fall slightly, but more than offset by lower production expenses and the escalation of government payments.  Receipts have been aided in recent months by an improvement in crop prices, driven by stronger year-end export sales. Despite a lot of volatile factors, U.S. ag exports will likely end the year around $140 billion – relatively flat compared to the past three years after setting a record level of nearly $150 billion in 2014. Alternatively, the value of U.S. ag imports continues to increase causing the U.S. to flirt with an ag trade deficit for the first time since 1959. 

Graph of U.S. Net Farm Income from 2010 to 2020 showing that in 2020 Government payments made up 39% of NFI and Market Income was 61%

U.S. ag exports to our largest trading partner, Canada, will be virtually flat in 2020, while exports to Mexico could end the year down 10% or more as COVID-19 has taken its toll on the Mexican economy. Most of the trade optimism for U.S. ag early this year focused on the U.S./China Phase One trade agreement given their commitment to import $36.5 billion of U.S. ag products in 2020. This compares to a record level of $25.9 billion of U.S. ag exports to China in 2012, which fell to $9.1 billion in 2018. Through September, the U.S. has shipped $10.7 billion (up 37% in 2020), with strong grain, pork and beef sales. Despite robust export activity late in the year, U.S. ag exports to China are still projected to fall below Phase One targeted levels.  Export sales to Japan and the EU also trended lower in 2020. 

Kentucky’s ag economy has seen its cash receipt level fall from a record $6.5 billion in 2014 to $5.5 billion in 2019, but net farm income has been supported in recent years by very favorable crop yields, large government payments, and lower production expenses. Net farm income totaled $2.2 billion in 2019, which actually was above the 10 year average of $1.8 billion, adjusted for inflation. We are forecasting that despite a lot of volatile factors impacting the farm economy, Kentucky ag cash receipts will remain relatively stable in 2020 at $5.5 billion.[1] Our current estimate reflects a much better outcome from our April 2020 forecast when we projected that COVID-19 (and other factors) could trim over $300 million off Kentucky ag sales in 2020.  Improving grain prices and impressive yields boosted grain receipts to help offset lower equine, poultry, dairy, and tobacco receipts. Despite a tough year, poultry remains the state’s largest ag enterprise, accounting for 19% of projected 2020 sales, followed by corn and soybeans (each at 17%) with equine falling to fourth (16%). Producers of local produce/meats, and other value-added agriculture experienced continued growth, especially given changing consumer purchasing patterns amidst a pandemic. The forestry sector also experienced some improvement with a rebound in stumpage prices amidst tightening supplies, continued growth in barrel demand and a better trade environment. Two rounds of CFAP and the last portion of the 2019 MFP payments will likely boost Kentucky direct government payments to more $500 million in 2020, which may enable Kentucky net farm income to exceed last year’s $2.2 billion level.

[1] Note:  USDA/NASS will release official 2020 state cash receipts in August 2021.


Graph of Kentucky Agricultural Cash Receipts from 2010 to 2020

What about 2021?

While farm income and farmer’s optimism rebounded late in 2020, the farm economy enters 2021 with an even greater degree of uncertainty.  Every business will continue to be impacted by the Coronavirus and the lingering effects on the overall economy. Farmers, agribusinesses, and the retail food sector will continue to adjust to the virus creating challenges for some sectors (e.g. ethanol/high-price beef cuts) and opportunities for others (e.g. local food/meat processing businesses). Political uncertainty also affects the 2021 ag outlook regarding how new faces in Washington DC will address future farm policy/government payments, trade policy, ethanol, climate change, water and other environmental regulations, market concentration and rural infrastructure. Farm commodity prices, in general, are forecast to improve, but will be very vulnerable to abrupt changes in trade and the weather. Production expenses are forecast to remain relatively low, especially interest rates and energy-related inputs to help offset anticipated higher feed costs. Land prices and rents are expected to remain steady even amidst a volatile and uncertain farm economy.  An improved price outlook may enable cash receipts to be slightly higher in 2021, but net farm income will likely fall given anticipated reductions in government payments. This potential outcome will likely put additional financial stress on many farms in 2021 that were facing cash flow/liquidity/depleted working capital concerns entering 2020.

Watch full U.S. and Kentucky Ag Economy presentation

The financial condition of the average commercial-sized Kentucky crop farm began 2020 in much better financial shape than in previous years.  This is part of a three-year trend of increasing net farm income that has enabled these farms to build working capital.  Projected increase in net farm income for 2020 will provide an opportunity for farmers to further improve their financial condition in face of uncertainty in 2021.  Net farm income is projected to be higher because of higher-than-normal yields, a sharp rise in commodity prices at the end of harvest, and large government supplemental payments.  Observations are based on commercial-size crop farms participating in the Kentucky Farm Business Management program

Watch full Kentucky Profitability presentation


Despite optimism coming into 2020, COVID’s demand and supply chain disruptions rocked cattle markets, especially in spring and summer. The backlog of fed cattle that was created by lower spring harvest levels pressured prices all through the marketing chain. Heavy feeder cattle prices decreased by more than $25 per cwt from January to April, but did manage to gain a good portion of that back by early fall. Calf markets failed to see their typical spring run-up and fall prices have been very close to 2019 levels. Cull cow and bull markets were a relative bright spot as less harvest volume impacts were seen in those markets and ground beef demand benefited from increased at-home consumption. Assuming that COVID impacts lessen in 2021, improvements should be seen in both domestic and international beef demand. This, combined with a smaller calf crop should pave the way for price some improvement next year. 550 lb steer calves are likely to average in the $160’s by spring and should hold the $140’s in the fall on a state average basis, with groups and higher quality calves selling at considerable premiums.


Kentucky’s poultry sector has generally continued to grow in size for many years and this was again the case coming in to 2020. But, poultry markets were impacted by COVID and wholesale broiler prices will likely be down nearly 20% for the year. Interestingly, egg prices have been higher for 2020 and rose considerably during the early stages of the pandemic. In reality, the vast majority of Kentucky’s contract poultry producers are somewhat isolated from these market impacts. However, they are impacted by increases in time between flocks as integrators adjust to market signals, which was the case for many growers this year. While 2020 brought challenges, growth is likely to continue over time, and 2021 should be a much improved year for the sector.


With general optimism about trade, and continued concern over African Swine Fever in China, the hog industry came into 2020 expecting a solid year. USDA inventory estimates also suggested increased hog numbers in the Commonwealth for 2020, with much of the increase in contract integrated operations. Eastern Cornbelt hog prices mirrored 2019 for the first three months of the year before COVID’s impact on demand and processing took its toll. Prices fell by more than 40% from March to July and 2020 actually saw seasonal lows around the time the hog market typically makes its highs. However, prices have rallied since summer and set up for a much better 4th quarter. While reports continue to suggest China is rebuilding hog numbers, potential for strong exports and improved domestic demand exist for 2021, and hog producers should see a much better year. Eastern Cornbelt hog prices should start 2021 in the $60’s on a carcass weight basis, but find the $70’s by summer.


After exceeding $1 billion in both 2018 and 2019, Kentucky farm level equine receipts will drop considerably in 2020. Both the number of horses sold and median prices were down in yearling and breeding stock sales. While the timing of COVID likely had limited impact on stud fees in 2020, stud fees are likely to decline on average in 2021. It is almost a certainty that sale values will continue to be depressed into next year as well. While the market for upper-tier horses has the potential to stay relatively strong, impacts are likely to be felt across the vast majority of the equine market. When sales value, stud fees, and continued declines in the number of mares bred are considered, KY equine receipts will likely be even lower in 2021.


Kentucky came into 2020 with another decrease in dairy cow numbers and dairy producers have dealt with an extremely volatile market. The US All Milk price for the first nine months of the year ranged from a low of $13.60 per cwt in May to a high of $20.50 in July. Much of the volatility has been driven by large swings in cheese prices, which have considerable impact on farm level milk prices. Additionally, the 2019 change in the way that the base skim milk pricing factor was calculated, combined with de-pooling in response to higher class III prices, greatly impacted producer price differentials for much of the year. Producers have received some help in the form of Coronavirus Food Assistance Program (CFAP) payments and the Dairy Margin Coverage (DMC) program.  But, increasing feed prices have also cut into returns this fall. Looking ahead, indicators suggest that the dairy herd is growing at the national level, which means increased production is likely for 2021. Given this, demand for dairy products will have to improve for producers to see widespread price improvement in the coming year. A farm level milk price range of $17-19 per cwt would seem realistic for 2021.

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Total production for the 2020 corn crop is projected to be just 2% higher than the five-year average. Corn use for ethanol production is projected to be 5% lower than the five-year average, but is roughly balanced by a projected 5% increase in livestock feed use.  The biggest change expected for the 2020-21 marketing year is a significant increase in corn exports, projected to be 27% higher than the five-year average. The combined affect would be an 18% drop in corn ending stocks over the five-year average, pushing the expected U.S. on-farm corn price up to $4.00/bu for the 2020-21 marketing year, compared to the five-year average of $3.50/bu. This would be the highest average on-farm corn price seen since 2013. Projected corn prices for the 2021-22 marketing year also look strong, with U.S. on-farm prices in the $3.85-3.95/bu range. This would be about $.40/bu higher than the five-year average. In Kentucky, corn prices are $3.70-3.90/bu as of mid-November, with forward contracting prices jumping to $4.10-4.40/bu this winter in our better markets.  


Total production for the 2020 soybean crop is projected to be just 1% higher than the five-year average. U.S. soybean use are projected to be 8% higher than the five-year average, while soybean exports are projected to be 14% higher than the five-year average. The combined effect of this increased usage would be a 60% drop in soybean ending stocks over the 5-year average, pushing the expected U.S. on-farm soybean price up to $10.40/bu for the 2020-21 marketing year, compared to the five-year average of $8.96/bu.  As with corn, this would be the highest average on-farm soybean price seen since 2013. Projected soybean prices for the 2021-22 marketing year also look strong.  Futures prices for the 2021 crop are roughly $1.00/bu below the 2020 crop, and would likely result in U.S. on-farm prices of around $10/bu for the 2021-22 crop marketing year.  Although lower than projected for 2020-21, this would be over $1.00/bu higher than the five-year soybean price average. In Kentucky, soybean prices are $10.80-11.10/bu as of mid-November, with forward contracting prices jumping to $11.20-11.90/bu this winter in our better markets.  


Soft Red Winter Wheat production in 2020 increased 11% from 2019 but is still 13% below the 5-year average. Combined with low initial stocks, the resulting available supply going into the marketing year is down 24% from the 5-year average. Domestic use is projected to be down 7% and exports down 28%, for a total use reduction of 14% over the 5-year average. However, given that the available supply is down 24%, the resulting ending stocks are projected to be only 40% of the 5-year average. This has led to steep increases in price, up around $1.00/bu since June. In Kentucky, cash prices as of mid-November and forward contracting prices through the winter are both around $6/bu, prices that have not been observed in years. Forward contract new crop prices (June/July) for 2021 in Kentucky are also around $6/bu.  

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Kentucky’s tobacco sector continued to shrink in 2020 amidst contract volume reductions in response to slumping export markets, imports, lower cigarette sales, and a surplus of dark tobacco stocks. Tobacco acres are projected to be down around 15% in 2020 with yields highly variable across the state.  Even with slightly higher market prices, the value of Kentucky tobacco production may fall from $268 million in 2019 to around $225 to $235 million versus averaging $311 million over the past five years. Kentucky tobacco growers did benefit from being a part of CFAP payments, expected to total more than $20 million, along with an expansion in Connecticut broadleaf (cigar) tobacco acres. The reduction in domestic cigarette sales moderated in 2020, snuff consumption was stable, while the growth in vaping products moderated. Despite anticipated lower tobacco product sales and sluggish exports, contract volumes for the coming year may remain relatively stable or could actually increase for some individual growers as leaf stocks are ending 2020 fairly tight and frustrated growers exit. Profit margins will likely continue to be squeezed with higher labor costs, GAP requirements, limited yield gains, and stagnant leaf prices, resulting in continued concentration among growers.  Uncertainty on issues such as restricting nicotine levels/flavorings, taxes, immigration, trade, and emerging non-combustible tobacco products will continue to dampen the outlook for the remaining Kentucky tobacco growers.


Kentucky’s hemp industry took a major pullback in 2020 in response to experiences “learned” from the 2019 crop, characterized by a dramatic drop in prices, unsold stocks, limited processing capacity, regulatory uncertainty, and overall production/marketing frustrations. KDA reported farm sales totaling $51.3 million in 2019, up from $17.8 million in 2018 and $7.5 million in 2017. While the number of grower licenses issued in Kentucky remained stable (960 in 2020 vs 978 in 2019) around 160 licensees indicated that they would not plant a crop in 2020 in hopes of finding a buyer for their unsold inventory from previous years.  Licensed hemp acres in Kentucky for 2020 totaled 32,000 acres (following a record high 60,000 acres in 2019), with planted acres reportedly around 5,000 (95% for CBD). Nationally, licensed hemp acres fell an estimated 20-30% in 2020 (vs over 500,000 licensed (250,000 planted) acres in 2019, while the number of hemp licenses issued actually increased. Despite the dramatic cut in acres, a glut of stocks remains with supply chain challenges and company bankruptcies.  Given CBD challenges, there appears to be a growing interest nationally in hemp grain and fiber production, but increasing corn/soy prices and processing issues may hinder expansion. The downward spiral in farm-level prices has moderated in recent months, with Kentucky hemp biomass price averaging $0.63/%CBD, conventional grain prices, $0.45-$0.55/lb, organic grain prices, $1.00-$1.25)/lb, and fiber, $0.05-$0.12/lb. Low price expectations in conjunction with unsold stocks, market and regulatory uncertainty, and minimal infrastructure development will likely keep acreage and enthusiasm down in 2021 as the emerging industry works off excess supplies and adjusts to changing market/regulatory conditions.

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Horticulture markets in Kentucky are made up of many pieces and cash receipts, especially in the current environment, are difficult to monitor. Costs are up, especially labor and Covid compliance. But revenues are also up for the most part – although some relatively wide swings in a number of our traditional direct markets. Direct to restaurant and school sales were down substantially. Farm markets sales were up a little, with CSA and agritourism sales up significantly. However, wineries were hit hard with limits to on-site tasting. Auctions were up considerably, approximately 25% YOY. Garden center sales were higher with retail nursery sales noted to be around 20% higher nationally with wholesale nursery up slightly less. Although early for final 2020 estimates, total produce and nursery cash receipts will likely be at record levels for Kentucky, approaching $160 million.

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Timber and lumber markets improved in 2020 compared to 2018-2019. While the removal of tariffs on hardwood exports into China has increased log and lumber prices for red oak and white oak continues to be high demand for barrels and other products, the health of individual industries varies considerably. One key issue is the shortage of logs. This is a consequence of low timber prices in 2018-19 that resulted in a reduction in timber sales. Ultimately, this has played a role in decreasing logging capacity, reducing log supply and log inventories at mills going into winter. The increasing demand for logs to satisfy lumber and other wood product orders and the limited supply of logs has created a seller’s market for timber with overall stumpage prices increasing, a trend which is expected to continue into 2021.  On a negative note, the recent and unexpected closure of a pulp and paper facility in eastern TN (Kingsport) and the continued lack of strong pulpwood market in western Kentucky negatively impacts landowners’ timber value and the ability to perform good forest management. In summary, the forestry sector contributed $12.9 billion in total output to Kentucky’s economy and we expect this contribution to remain steady with stumpage values continuing to improve in 2021 providing opportunities for landowners to sell timber. However, we remain concerned over logging capacity, the long-term health of small mill operations, and lack of markets for low grade pulpwood across the state.

Contributing authors: Dr. Jeff Stringer, Chad Niman, Billy Thomas, Bobby Ammerman, Dr. Thomas Ochuodho of the Department of Forestry and Natural Resources

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