Farm Profitability Expected To Dip For Third Straight Year

net farm income and net cash income 2016Farm sector profitability is forecast to decline for the third straight year, according to the the Farm Income and Financial Forecasts for 2015 and 2016, recently released by USDA’s Economic Research Service. Net cash farm income for 2016 is forecast at $94.1 billion, down 13.3% from the 2015 estimate. Net farm income is forecast to be $71.5 billion in 2016, down 11.5%. If realized, 2016 net farm income would be the lowest since 2009.

“Today’s farm income forecast underscores the unique ability of American farmers and ranchers to plan ahead and make sharp business decisions in a challenging market, as net farm income for 2015 was revised up significantly to $80.7 billion-an increase of 43% since the February forecast,” said Tom Vilsack, USDA secretary. “Falling production expenses, including the price of fuel and inputs, was the largest contributor to this latest rally by farmers. Just last week, farm exports for 2016 were revised up to one of the highest levels on record, demonstrating that U.S. farmers and ranchers continue to beat expectations.”

Cash receipts are forecast to fall $25.7 billion (6.8%) in 2016, with a $7.1 billion (3.7%) decline in crop receipts. Lower receipts are expected for vegetables/melons, down $3.2 billion (5.5%) and $1.5 billion (7.5%), respectively. Direct government farm program payments are projected to rise $2.7 billion (24.8%) to $13.5 billion in 2016, in part due to the expected price environment.

For the second year in a row production expenses are down. Total production expenses are forecast down $10.1 billion (2.8%) over 2015, led by declines in farm-origin inputs (feed, livestock/poultry, seed) and fuel/oils.

“Overall, farm income over the last five-year period reflects the highest average five-year period on record. Although net farm income for 2016 is forecast to decline relative to 2015, the 2014 Farm Bill has provided for a comprehensive farm safety net that will ensure financial stability for America’s farming families,” Vilsack said. “Farm Bill program payments-including Agriculture Risk Coverage (ARC), Price Loss Coverage (PLC), and the Margin Protection Program for Dairy (MPP) are forecast to increase nearly 25% to $13.5 billion in 2016. For producers challenged by weather, disease, and falling prices, we will continue to ensure the availability of a strong safety net to keep them farming or ranching.”

Farm asset values are forecast to decline by 2.2% in 2016, and farm debt is forecast to decrease by 0.8%. Farm sector equity, the net measure of assets and debt, is forecast down by $61.2 billion (2.4%) in 2016. The decline in assets reflects a 1.5% drop in the value of farm real estate, financial assets, and machinery/vehicles. The decline in farm debt is driven by lower non-real estate debt (down 4.6%), reflecting a change in farmers’ management decisions (such as reducing input expenditures) but also an increase in short-term commercial bank loan rates, which make debt more expensive.

“The estimates today also showed that debt-to-asset and debt-to-equity ratios – two key indicators of the farm economy’s health – continue to be near all-time lows. In addition to strong balance sheets, median household income for farming families remains near historic highs. In 2016, higher off-farm earnings are expected to help stabilize losses due to low commodity prices,” Vilsack said.

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