Ag Outlook Update: 2016 Farm Income Forecast

Yesterday, USDA’s Economic Research Service (ERS) updated its 2016 farm income forecast. The ERS farm income data estimates are released three times a year, including February, August, and November.

ERS explained that, “Farm sector profitability is forecast to decline for the third straight year. Net cash farm income is forecast at $90.9 billion, down about 2.5 percent from the 2015 forecast levels. Net farm income is forecast to be $54.8 billion in 2016, down 3 percent. If realized, 2016 net farm income would be the lowest since 2002 (in both real and nominal terms) and a drop of 56 percent from its recent high of $123.3 billion in 2013.”

Yesterday’s update indicated that, “Nearly all major animal specialties—including dairy, meat animals, and poultry/eggs— are forecast to have lower receipts, as are vegetables/melons and feed crops,” and added that, “Direct government farm program payments are projected to rise $3.3 billion (31.4 percent) to $13.9 billion in 2016 in response to the expected price environment.”

Meanwhile, “Farm asset values are forecast to decline by 1.6 percent in 2016, and farm debt is forecast to increase by 2.3 percent.”

ERS also noted that, “Most farm households earn all of their income from off-farm sources—median off-farm income is forecast to increase 4.1 percent to $75,354 in 2016.”

With respect to production expenses, in a broader analysis, ERS stated yesterday that, “In 2016, the drop in expenses [$3.8-billion (1 percent)]is expected to alleviate, but not completely offset, the drop in cash receipts, and ultimately lead to tighter margins.”

More specifically with respect to cash rents, the income report indicated that, “Net rent expense—the amount paid to rent land, adjusted for the landlord’s share of government payments and insurance indemnities and net of any expenses paid by the landlords—is forecast to increase by 2.9 percent to $21 billion in 2016. As in recent years, the majority of net rent expense is forecast to be paid to nonoperator landlords as opposed to landlords who are also operators.”

With respect to the projected 31.4% increase in farm program payments, ERS noted that, “The new Price Loss Coverage (PLC) and Agricultural Risk Coverage (ARC) programs, introduced in the 2014 Farm Bill, are expected to account for almost two-thirds of direct payments to farm operations.”

In a separate look at some financial variables, ERS also noted yesterday that, “Farm real estate values have increased rapidly in recent years as high crop prices and low interest rates led to strong demand for farmland and buildings. With a third straight year of lower commodity prices and income forecast in 2016, farm real estate values are expected to decline modestly.”

Wall Street Journal writer Jesse Newman reported yesterday that, “Farm incomes are declining because prices for corn, soybeans and wheat have fallen sharply after three straight years of bumper U.S. crops and rising output elsewhere in the world. Overseas demand for some U.S. crops also has cooled, in part because of the strong dollar.”

Bloomberg writers Alan Bjerga and Jeff Wilson reported yesterday that, “The 2013 boom spurred farmers to boost crop and livestock production, triggering a cycle for surpluses in major agricultural commodities at the same time, David Anderson, a livestock economist at Texas A&M University in College Station, said in a telephone interview. Farmland values have dropped from all-time highs.”

Des Moines Register writer Christopher Doering reported yesterday that, “Still, Agriculture Secretary Tom Vilsack said the drop ‘is an improvement from the double digit declines seen in 2014 and 2015. It reflects a more competitive trade environment, softening projection for global demand and a continuation of the dip in agricultural commodity prices.’”

Meanwhile, the World Agricultural Outlook Board released its monthly World Agricultural Supply and Demand Estimates (WASDE) report yesterday, which stated that, “The projected range for the corn season-average farm price is narrowed 5 cents on both ends to $3.35 to $3.85 per bushel.”

Regarding soybean prices, the WASDE report stated that, “The 2015/16 season-average soybean price range projection is unchanged at $8.05 to $9.55 per bushel.”

In a separate Wall Street Journal article from yesterday, Jesse Newman explained that, “Grain prices fell to multiweek lows Tuesday after federal forecasters raised their outlook for U.S. stockpiles amid sluggish overseas demand.

Corn futures reached a more-than three-week low, while wheat dropped to the lowest level in more than two months.”

And recall that earlier this month, the Food and Agriculture Organization of the United Nations (FAO) indicated that, “The FAO Food Price Index fell in January, slipping 1.9 percent below its level in the last month of 2015, as prices of all the commodities it tracks fell, sugar in particular.”

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The FAO report pointed out that, “The main factors underlying the lingering decline in basic food commodity prices are the generally ample agricultural supply conditions, a slowing global economy, and the strengthening of the US dollar.

“This month, FAO also raised its forecast for worldwide cereal stocks in 2016, as a result of lowering its projected consumption and raising 2015 production prospects.”

With respect to some potential general implications of this outlook for the ag economy, see this update from earlier this month, “Agricultural Outlook: Concerns Persist for Farmers and Ag Lenders in 2016.”

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