Net farm income is expected to decline for the third straight year in 2016 and is likely to remain well below recent peaks for the next several years, according to the University of Missouri Food & Agricultural Policy Research Institute (FAPRI) August baseline update. Net farm income is projected to decline by $10 billion in 2016 as the drop in receipts outweighs reductions in production costs.
The report says sharply lower cattle and egg prices will contribute to a $23 billion reduction in projected livestock sector receipts in 2016. Crop receipts also will decline slightly as lower prices for corn, wheat and other crops offset the impact of increased production.
FAPRI forecasts net farm income to increase slightly between 2017 and 2019, in part because of a modest recovery in crop prices and cash receipts. “Even in 2019, however, nominal net farm income remains below the 2015 level, and inflation-corrected real net farm income is well below the 2003-2012 average,” the outlook explains.
The latest projections show significantly higher net farm income than reported in the March 2016 FAPRI baseline outlook. For example, projected net farm income in 2016 was $15 billion above the March estimates.
“Most of the difference can be explained by historical data revisions,” the report notes, explaining that the U.S. Department of Agriculture "reduced its estimates of 2015 production expenses by more than $21 billion from previous estimates, with reduced capital consumption accounting for almost half the change. Using the revised 2015 costs as a new point of reference results in lower estimates of production expenses and higher net farm income.”
August USDA reports indicated that cropland rental rates and average farm real estate values declined in 2016 after years of sharp increases. Additional declines are projected for 2017 through 2019 in response to sharp reductions in crop returns relative to recent peak levels.
With reduced asset values, the FAPRI report notes that the projected ratio of farm debts to assets will increase from 12% in 2015 to 14% in 2019.
FAPRI said the numbers reported are point estimates based on a particular set of projected market outcomes.