FARM incomes are on the rise, with the U.S. Department of Agriculture forecasting a near-record $120.6 billion.
Adjusted for inflation, 2013 net farm income would be the second largest since 1973 and the fourth time in history the measure has exceeded $100 billion, USDA said.
In its midyear update, USDA said a return to trend yields in the crop sector would buoy incomes, although net cash income is expected to fall 10% from 2012 given large corn inventories projected at year-end (Figure 1).
Net cash income considers the difference between cash expenses and the combination of commodities sold during the calendar year, so the likelihood of farmers storing grain after this fall's harvest accounts for a significant portion of the difference.
USDA said the projected nominal increase of $13.1 billion in total farm expenses continues a string of large year-to-year movements that have taken place since 2002. Production expenses are expected to be the largest on record, at $354.2 billion, with rent, labor and feed costs expected to show the largest increases over 2012.
Similarly, farm sector assets, debt and equity are all forecasted to increase this year, with asset value gains expected to outpace increases in debt again this year. USDA said the debt-to-asset and debt-to-equity ratios in agricultural sectors are expected to reach historic lows.
Digging into the forecast's specifics, USDA estimated that cash receipts for crops will fall 5.5% this year, down $12.4 billion and the first decline since 2009. The value of crop production, however, is expected to increase 2.7% on a much larger harvest this fall.
In figuring its forecast, USDA used a 2013 average corn price of $5.85/bu. and projected the third-largest crop on record. Soybean production increases are expected to offset the slightly lower price for the oilseed, underpinning the overall value of production (Figure 2).
A projected 4.9% increase in livestock receipts, meanwhile, is not expected to outpace increases in production expenses. The value of livestock production is expected to increase 5.2%, reflecting solid gains in broiler and milk sales (Figure 3).
The annual average price for broilers is expected to rise almost 11 cents/lb., or 22%. Broiler volume is expected to increase slightly, and exports are expected to increase almost 3%.
Milk receipts, meanwhile, are forecasted to exceed the previous high set in 2011, with prices up more than $1/cwt., or 6%, to $19.70/cwt., which is the second-highest price on record. Milk production is expected to grow 1%, and exports are pegged to be 17% larger than last year.
While expenses across the spectrum of agricultural production enterprises are expected to increase, the rate of increase is slowing. The expected 3.8% hike this year is less than half of the $28.5 billion rise in 2012 (9.1%) and much less than the $25.1 billion increase in 2011 (8.7%).
In aggregate, production expenses make up 75% of gross farm income. Since 2003, expenses for farm inputs have increased 106%, while operating and overhead expenses have increased 60%.
Feed costs this year are expected to climb $2.1 billion, or 3.6%, although the Economic Research Service midyear report acknowledges that feed costs are beginning to moderate and will continue to do so in the fourth quarter of the year. Even though prices are high, the prices paid index for complete feeds has fallen 10% since the peak set in September 2012.
Exports to slip
In an early look at 2014 agricultural exports, USDA is projecting a $5 billion drop from the record $140 billion forecasted for fiscal 2013. Oilseeds and products are expected to show the largest decline, dropping $5.4 billion on lower soybean and meal prices.
Grain and feed exports, meanwhile, are projected to fall $1.7 billion on lower wheat, rice and feed exports. Little change, however, is expected in terms of livestock, poultry and dairy sales abroad, although exports to China are now projected to fall $2 billion as Canada reclaims its position as the top destination for U.S. agricultural products.
In terms of trade balance, the overall U.S. margin is likely to narrow as imports are forecasted to be a record $113 billion, up $8 billion from fiscal 2013. The U.S. agricultural trade surplus is expected to decline $13 billion, making the $22 billion surplus the smallest since 2007.