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U.S. pegs farm income at eight-year high amid strong corn, soy prices

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CHICAGO, Sept 2 (Reuters) - U.S. farmers' net income is projected to jump 19.5% this year to an eight-year high of $113 billion, the U.S. Department of Agriculture said on Thursday in a sharp reversal from a February forecast for a decline in profits.

A surge to eight-year highs in U.S. corn and soybean prices this spring has brightened the financial outlook for farmers even as aid payments from the federal government are declining. Crop prices have pulled back from peaks reached in May but remain historically high due to tight global supplies and robust imports from China.

Rising profits have increased farmers' demand for land, tractors and tools, providing an economic boost to rural towns.

The USDA's latest forecast is positive for equipment manufacturers such as Deere & Co, AGCO Corp and CPM Holdings, Moody's Investors Service said in a note.

Farmers in recent years relied on aid payments from the federal government to offset financial losses linked to the U.S.-China trade war and COVID-19 pandemic. However, direct government payments are forecast to fall by 38.6% to $28 billion in 2021 due to reduced COVID-19 relief, after increasing by 103.5% in 2020 compared to 2019, according to the USDA.

In February, the USDA predicted net farm income, a broad measure of profits, would fall 8.1% in 2021 due to lower government payments and higher expenses.

Farmers' production expenses will increase by 7.3% to $383.5 billion in nominal terms this year, according to the USDA. Spending on nearly all types of expenses is expected to rise, the agency said, as U.S. consumers grapple with inflation across a range of products. (Reporting by Tom Polansek; Editing by Mark Porter)