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Farm sector profits expected to decline in 2018

Driven primarily by lower cash receipts, farm businesses specializing in wheat and dairy will experience lower net cash farm income.

Net farm income, a broad measure of profits, is forecasted to decrease $4.3 billion (6.7%) from 2017 to $59.5 billion in 2018, the lowest net farm income level in nominal dollar terms since 2006, according to the latest "Farm Sector Income & Finances" report released by the U.S. Department of Agriculture’s Economic Research Service.

Net cash farm income is projected to decrease $5.0 billion (5.1%) to $91.9 billion, the lowest level since 2009. In inflation-adjusted (real) 2018 dollars, net farm income is projected to decline $5.4 billion (8.3%) from 2017 and, if realized, would be the lowest real-dollar level since 2002. Real net cash farm income is projected to decline $6.7 billion (6.8%) from 2017, which would be the lowest real-dollar level since 2009.

Net cash farm income includes cash receipts from farming as well as farm-related income, such as government payments, minus cash expenses. Net farm income is a more comprehensive measure that incorporates non-cash items, including changes in inventories, economic depreciation and gross imputed rental income.

The 2018 forecast for farm business average net cash farm income (NCFI) is $93,200, the fourth consecutive decline since 2014 and the lowest average since 2011, in nominal dollars. Overall, it is down 7.3% from 2017. This decline is consistent with NCFI for the whole farm sector, which is projected to decrease by 5.1% (nominal).

A 6.2% ($2,100) increase is expected for cattle and calf farm businesses. Average net cash farm income for hog, poultry and dairy farm businesses — along with all crop farm business categories — is projected to decline in 2018, with wheat and dairy farms expected to see double-digit percentage declines.

Average NCFI for farm businesses specializing in most types of livestock production is projected to decrease in 2018, with the largest decreases — both in dollars and percent change — for farms specializing in dairy reflecting anticipated decreases in milk prices. Cattle/calf farm businesses are projected to have higher (6.2%) NCFI in 2018, with higher output expected to raise cash receipts.

Cash receipts for all commodities are projected to fall (in nominal dollars) by $2.0 billion (0.5%) in 2018 to $363.1 billion. Relatively small annual declines are predicted for both animal/animal product (0.3%) and crop (0.8%) receipts.

Total animal/animal product cash receipts are expected to fall $0.5 billion (0.3%) to $174.9 billion in 2018. Declining receipts for milk, turkeys and broilers are projected to more than offset higher receipts from other animals and animal products, the report noted.

The declines projected in receipts for milk and poultry/eggs are expected to more than offset a forecast for increases in meat animal receipts. Milk cash receipts are projected to drop $2.5 billion (6.7%) due to expected lower prices, while cattle/calf receipts are projected to be up $2.2 billion (3.3%) as higher quantities sold are expected to more than offset a decline in prices.

A $1.7 billion (4.5%) projected increase in soybean receipts will be more than offset by expected declines in receipts for wheat, corn, cotton, fruits/nuts and vegetables/melons.

Direct government farm payments are expected to decline $2.1 billion (18.6%) to $9.3 billion in 2018, reflecting large declines in Agricultural Risk Coverage and Price Loss Coverage payments.

Total production expenses (including operator dwellings) are projected to be up $3.5 billion (1%) in nominal terms to $359.2 billion in 2018, led by increases for fuels/oil, interest and hired labor. Partially offsetting these increases is an expected drop in feed expenses, which are projected to be down for the third straight year.

Working capital, which is the amount of cash and cash-convertible assets minus amounts due to creditors within 12 months, is projected to be $56.2 billion in 2018, a 16% decline from the 2017 projected amount. This reflects expected declines in 2018 farm income and current assets and an increase in current debt.

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