Nebraska Ready to Weather Third Year of Declining Farm Income12/05/2016
With the 2016 crop in bins, silos and piles, USDA economists have pulled out their tape measures to size up how the agricultural sector is expected to fare this year.
For Steve Nelson, a farmer and president of the Nebraska Farm Bureau, the U.S. Department of Agriculture’s 2016 Farm Income Forecast released earlier this week held few surprises.
“The numbers certainly are not unexpected knowing that the prices for almost everything we raise in Nebraska have remained at low levels,” Nelson said in a recent interview. “We all know agriculture is a cyclical business. We talked about that when prices were high but clearly we’re on the downside of the cycle now.”
The report showed 2016 net farm income, a measure of agriculture’s profitability, is expected to be $66.9 billion, down 17.2 percent from last year. If the prediction holds true, it would be the third straight year of decline and the lowest net farm income since 2009 in both real and nominal terms.
John Hansen, head of the Nebraska Farmer’s Union, says prices are putting a strain on farmers and their lenders. Belts are being tightened and more red is showing up in ledger books.
“(It) will be especially difficult for beginning farmers who do not have much equity to cushion the financial squeeze,” he said. “I look for a long and difficult winter as ag producers and bankers sharpen their pencils and struggle to come up with positive cash flows for 2017.”
One of the biggest drags on farm income was a drop in cash receipts for livestock and animal products, which are expected to decline by 12.3 percent, or $23.4 billion. Crop receipts, by contrast, are forecast to be essentially unchanged from 2015.
Nebraska Department of Agriculture Director Greg Ibach is pessimistic about the report, noting that agriculture is Nebraska’s top economic driver and low farmer income could affect both the state economy and government.
“When the agricultural industry suffers, it also impacts Main Street Nebraska businesses, so the forecast for a third straight year of declining farm income will continue to impact our state,” Ibach said. “The downward trend in Nebraska’s tax revenues is further proof that continued lower farm income is impacting the state’s economic condition.”
But Eric Thompson, an economist and director of the Bureau of Business Research at the University of Nebraska-Lincoln, said the state has a diverse economy capable of weathering agriculture’s frigid financial situation.
“There is a significant chunk of the Nebraska economy that is in the business of processing agricultural commodities, storing them, transporting them, utilizing them. Meat processing plants for example,” he said. “Even if prices and farm incomes are low, as long as the crop is large that industry can continue to thrive and in fact may benefit in some ways from lower prices.”
U.S. Agriculture Secretary Tom Vilsack sought to calm economic fears, saying the health of the overall farm economy is strong in the face of challenging markets. Two key indicators of the farm economy’s health — debt-to-asset and debt-to-equity ratios — remain near all-time lows and more than 90 percent of farm businesses are not considered highly leveraged.
“The bigger picture shows that farm income over the last five-year period reflects the highest average five-year period on record,” Vilsack said in a news release.
Federal safety net programs, which help shield farmers from price dips and crop losses due to weather, are forecast to pay out $12.9 billion in 2016, a 19 percent increase over the year prior.
The 2016 Farm Income Forecast includes these highlights.
- Farm production expenses were forecast lower, led by reduced costs for livestock, fertilizer and fuel. The expected $9.2 billion (2.6 percent) decline is the second largest year-over-year reduction in expenditures since 2009 and will ease, but not completely offset, pressure from lower cash receipts.
- Weak corn prices in 2016 more than offset production gains, which means cash receipts for the crop are expected to fall by almost 4 percent, or $2 billion, from 2015 levels.
- The value of livestock production is forecast to decline 13.3 percent to $168.6 billion in 2016.
- Soybean cash receipts are expected to increase 16 percent, more than $5 billion, thanks to both increased production and strong exports that led to a price rally.
- While prices for most major agricultural products are expected to fall, there are a few exceptions. Forecasts call for a 10 percent or more rise in cash receipts for turkeys, rye, cotton and tobacco.
Source: Nicholas Bergin, Lincoln Journal Star