USDA: “Farm Sector Weakness Forecast To Continue”

The U.S. Department of Agriculture’s Economic Research Service (ERS) updated its 2016 Farm Sector Income Forecast today.  In part, ERS stated that, “Net cash farm income for 2016 is forecast at $94.1 billion, and net farm income at $71.5 billion. Both measures are forecast to decline for the third consecutive year after reaching recent highs in 2013 for net farm income and 2012 for net cash income. Net cash farm income is expected to fall by 13.3 percent in 2016, while net farm income is forecast to decline by 11.5 percent. These declines follow the 17.5- and 12.9-percent reductions in net cash income and net farm income, respectively, that occurred in 2015.”

Graphic from USDA-ERS

Today’s ERS update indicated that, “Crop cash receipts—the cash income from crop sales—are forecast to fall 3.7 percent ($7.1 billion) in 2016 as prices continue to decline for most field crops. The crop cash receipts forecast of $182.3 billion is $2.9 billion under the most recent 10-year average. Since hitting a record high in 2012, corn receipts are forecast to fall 37.7 percent over the 4 years through 2016, primarily due to lower prices. Expected further weakening of corn prices would more than offset benefits from production gains, leading 2016 corn cash receipts to fall by $2.9 billion (6 percent) from 2015…[and]…Increased soybean production is expected to be offset by falling prices, leading soybean cash receipts to decline 0.4 percent in 2016.”

ERS also pointed out that, “Direct government farm program payments are forecast to rise by 24.8 percent in 2016 to $13.5 billion (see table on government payments)…[O]perators with corn base acres received almost 84 percent of Agriculture Risk Coverage-County (ARC-CO) 2015 payments, reflecting both corn price declines and the large number of corn base acres on which payments are made. About 65 percent of ARC-CO 2016 payments are expected to go to producers with corn base acres, 15 percent to wheat base producers and another 15 percent to producers with soybean base acres. The forecast increases in 2016 payments reflect expected declines in seasonal average crop prices. Payments are targeted to begin after October 1, 2016, following adjustments for adjusted gross income, payment limits, and other factors.”

In a bit of good news, the ERS update added that, “After reaching record highs exceeding $390 billion in 2014, farm production expenses are forecast to dip for the second consecutive year in 2016.”

More specifically with respect to rent expenses, ERS stated 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 decrease by 2.2 percent to $19.6 billion in 2016. As in recent years, the majority of net rent expense is forecast to be paid to nonoperator landlords (farmland owners who do not themselves farm) as opposed to landlords who are also operators.”

In a related item regarding cash rent expenses, DTN Executive Editor Marcia Taylor reported on Friday that, “University of Illinois economist Gary Schnitkey agrees most cash renters need closer to $4 corn to break even. But if corn prices average only $3.50 per bushel next season — with no farm program payments on the horizon — even many high-yielding 200-bushel Illinois farms could lose $65 an acre on $245 cash rent, Schnitkey estimates. (Soybeans at $9 or $9.50 offer a better prognosis.)”

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