Farm economy continues to take hit

Farm economy continues to take hit

USDA projects major drops in net cash and net farm income for 2015.

Both net cash and net farm income are forecast to decline for the second consecutive year after reaching recent historic highs in 2013, according to newly-released farm sector profitability forecasts published Tuesday by the U.S. Department of Agriculture.

Net cash income is expected to fall by 21% in 2015, while the forecast 36% drop in net farm income would be the largest since 1983 (in both nominal and inflation-adjusted terms).

Reduced livestock receipts are the largest contributor to the projected 36% decline in U.S. net farm income in 2015.

Livestock receipts could fall by over 9% ($19.4 billion) in 2015, due to a forecast 29% drop in dairy and a 27% decline in hog receipts. Mitch Morehart, senior ag economist at USDA’s Economic Research Service, said that cattle receipts are down only slightly but still remain strong relative to recent history.

After reaching a record high of $49.3 billion in 2014, milk receipts are expected to drop 29% in 2015 as declining prices more than offset a small expected increase in milk production. Hog production is expected to rise in 2015 as the industry recovers from the porcine epidemic virus. However, hog prices are expected to drop sharply.  

Poultry and egg receipts are expected to be broadly affected by the highly pathogenic avian influenza (HPAI) in 2015, although impacts are mixed. Since first being detected in December 2014, HPAI has claimed 48 million birds, with turkeys and egg laying chickens most vulnerable. The decline in the number of both turkeys and egg laying chickens is expected to reduce production and place upward pressure on prices, leading poultry/egg receipts to increase a forecast 5.2% in 2015.

Relatively few broilers have been infected by HPAI and U.S. broiler production is expected to increase in 2015. Still, U.S. broiler prices and cash receipts are expected to fall as HPAI-related export bans increase U.S. inventories and lead prices lower.

Crop receipts are expected to decrease by over 6% ($12.9 billion) in 2015, led by a forecast $7.1-billion decline in corn receipts, a $3.4-billion drop in soybean receipts, and a $1.6-billion drop in wheat receipts. Since hitting a record high in 2012, corn receipts have fallen 35%. Corn prices are expected to fall further in 2015, while production is also expected to drop slightly relative to 2014. Cash receipts for soybeans and wheat are also expected to decline from 2014 on quantity and price forecasts that fall by 8.5 and 13.8%, respectively.

Total production expenses are forecast to fall for the first time since 2009, although less than 0.5%, would represent only the third year since 2000 where the farm sector spent less than the previous year. Energy inputs and feed are expected to have the largest declines. Expenses are forecast to increase for labor, interest, and property taxes. Morehart said production costs have seen five consecutive years of increases for a cumulative 42% rise since 2009 before falling an estimated $1.5 billion this year.

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Morehart noted that for animal and product farm businesses the average income – especially for dairy and hog farms – is dramatically lower as a direct result of projected lower cash receipts. Many of the higher expense categories such as interest, expense and labor are prominent for dairy and hog producers.

Production expenses are expected to decline less than gross farm income in percentage terms, leading to tighter margins. The forecast decline in expenses is driven primarily by lower spending on feed, fuel, and fertilizer, which outweigh expected increases in spending on labor, interest, and property taxes/fees.

The largest forecast increase in farm production expenses is for interest outlays, up significantly due to expanded farm debt and higher interest rates. Interest paid on debt secured by real estate is expected to increase by almost 23% in 2015, to just under $12 billion. Interest payments for nonreal estate debt are also expected to increase substantially to $7.5 billion, a 25-percent increase over 2014.

Net farm income for 2015 has been revised downward compared to the February forecast and is the lowest since 2006. The changed outlook for net farm income is largely the result of a downward revision in the value of inventory change for crops and a significant increase in capital consumption. These more than offset an upward revision in crop receipts relative to the view last February, USDA said.

Secretary of Agriculture Tom Vilsack also said the forecast, although down from record levels, shows that rural America continues to “remain stable and resilient in the face of the worst animal disease outbreak in our nation’s history and while the western United States remains gripped by drought.”

Vilsack also added that American agriculture remains fundamentally sound, “supporting and creating good-paying American jobs for millions.” Two-thirds of all rural counties gained jobs over the past year and the overall economy continues a record-breaking pace of 65 straight months of private-sector job growth, Vilsack noted.

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