Net Cash Farm Income Forecast to Be 38 Percent Lower07/30/2018
The U.S. Department of Agriculture-Economic Research Service reported that inflation-adjusted net cash farm income for the sector is forecast in 2018 to be 38 percent lower than its peak in 2012 and 7 percent below its 1970 to 2016 average.
In a feature in the July “Amber Waves” ERS reported that several factors are in play, including: a steep decline in agricultural commodity prices; a weaker market for farmland; and an uptick in interest rates.
Lower commodity prices in the near future could further reduce farm receipts, which could make it difficult for some farmers to meet loan obligations or pay for production expenses. Farmers with variable interest rate loans could face increasing loan service obligations. And those who largely invested in machinery or land when commodity prices and farm incomes were at their high points, could face plummeting liquidity or elevated risk of financial insolvency, the report continued.
Farm incomes peaked in 2012 and 2013, but the decline for the next three years was compounded in 2016 by increased plantings and record U.S. farm production. That raised stocks on hand for many major commodities. At the same time, global demand slowed, the dollar was strong and those large inventories dropped crop and livestock prices even more.
In the four-year period from 2012 to 2016, farm sector net cash income fell 33 percent ($49 billion) to $97.3 billion, adjusted for inflation. USDA-ERS reports this is the largest multiyear decline since the 1970s, in both absolute and percentage terms. Prices farmers received plummeted 30 percent or more.
USDA’s Agricultural Resources Management Survey has data that indicated 56 percent of all farms reported negative net cash farm income from 2007 to 2016.
Worrying many is the trends in debt and interest payments in the farm sector. USDA-ERS reports farm sector debt has reached levels near the peaks of the late 1970s and early 1980s. From 1994 to 2016, inflation-adjusted farm debt rose by 79 percent. Total farm sector debt in 2016 is just 8 percent below the 1980 peak, adjusted for inflation. One saving grace is that interest expenses have stayed relatively stable since about 1990. Right now interest expenses are above their average levels but well below those levels seen in the 1980s.
For more information, see the full article at www.ers.usda.gov/amber-waves/2018/july/current-indicators-of-farm-sector-financial-health/.
Source: Jennifer Latzke, High Plains Journal