October 23, 2017
U.S. FARM INCOME LEVELS REMAIN LOW
The most recent United States Department of Agriculture (USDA) Farm Income forecast, which was released this past August, showed a slight upturn in the projected farm profits for 2017. Based on the USDA data, the farm income trend may be up; however, the news is not quite as positive as it has been portrayed. As we dig further into the data, we note that a large portion of the farming sector continues to deal with very tight profit margins and low farm profitability. The net farm income levels for a large number of farm operations remains quite low.
In the latest economic forecast released by the USDA Economic Research Service (ERS) is projecting U.S. Net Farm Income to increase by $1.9 billion (3.1 percent) in 2017, as compared to 2016. The total Net Farm Income for U.S. farmers in 2017 is estimated at $63.4 billion, which compares to Net Farm Income levels of $61.5 billion in 2016, $80.7 billion in 2015, $92.6 billion in 2014, and the record level of $123.8 billion in 2013. The projected 2017 U.S. Net Farm Income level would still represent a 5-year decline (2013 to 2017) of 49 percent from the peak year in 2013. The 2017 Net Farm Income projection would be the second lowest since 2010, trailing only the 2016 level.
The USDA ERS is also projecting the total Net Cash Income to increase by about 12.1 percent in 2017, as compared to 2016 levels. The 2017 Net Cash Income for U.S. farmers is estimated at $100.4 billion, which compares to Net Cash Income levels of $89.2 billion in 2016, $108.5 billion in 2015, $131.5 billion in 2014, and the record level of $135.6 billion in 2013. The projected increase in the estimated 2017 Net Cash Income is primarily associated with improved livestock profit levels in most enterprises in the past year, and higher amounts of crop inventories being sold in 2017, following the record U.S. crop yields in 2016. However crop prices, especially for corn, have remained quite low during most of 2017, which may lead to further adjustments in the final 2017 Net Income level.
The Net Cash Income is based solely on the estimated earnings generated from crop and livestock sales likely to occur during 2017, minus the expected cash expenses during the year. On the other hand, Net Farm Income is adjusted for values of farm inventories, and other farm balance sheet adjustments. Net Cash Income measures the solvency of a farm business, or the ability to pay bills and make payments on debt, while Net Farm Income measures the increase in wealth from crop and livestock production. When adjusted for inflation, the total Net Farm Income and the total Net Cash Income for U.S. farmers in both 2011 and 2013 reached the highest levels since mid-1970’s, before the sharp declines in the past few years. There are no signs on the horizon that we will see significant improvements in the farm income levels anytime soon.
Somewhat surprising to many, USDA increased the 2017 U.S. Net Farm Income estimate in the August Report by $1.1 billion (1.8 percent), as compared to the previous USDA estimate earlier this year in February. Many thought that the continued low commodity prices for corn, soybeans and other crops would lead to steady or declining 2017 farm income projections. However, improved profitability in the livestock sector was cited for the enhancement in the most recent Net Farm Income projections, as compared to six months earlier. USDA is estimating cash receipts from livestock production to increase by 8.4 percent in 2017, while cash receipts from crop production are only expected to increase by 0.3 percent during the year. USDA also cited increased receipts for many fruit and vegetable crops as a factor for the improved Net Farm Income.
Another interesting highlight from the most recent USDA ERS Report was the estimated median income level of U.S. farm households. The median 2017 household income for farm families is estimated at $76,831 for 2017, which is nearly the same as the 2016 level, and is about 6 percent lower than the 2014 household income level. In recent years, more than half of the U.S. farm households have lost money on their farming operations each year, with an estimated average loss of ($1,325) for 2017. The loss in available household income from the farm operation is compensated for by off-farm household income earned by farm families, which is estimated at $67,969 for 2017. During these times of reduced farm household income in recent years, many farm families have also been financially challenged by rapidly rising health insurance and health care costs.
The USDA ERS Farm Income Report gives an overall picture of trends in U.S. Net Farm Income, compared to recent years, based on likely crop and livestock receipts, and estimated farm expenses for a given year. The Report also provides an overview of changes in asset value, farm debt trends, and the equity position of the U.S, Farm sector. Obviously, there will be a wide variation in farm income levels across the U.S. in 2017, as well as within individual States, depending on crop conditions and market prices, crop and livestock enterprise mixes, and local economic conditions.
This wide variation in 2017 farm income levels will also likely exist in Minnesota and other Upper Midwestern States. There is expected to be considerable variation in 2017 crop yields across the region this year, along with vast differences in the market prices that producers receive for their crop and livestock production. Some farm operators may be able to show a small profit for 2017, while other producers in the same area may show a large financial loss for the year.
**********************************************************************************
Note — For additional information contact Kent Thiesse, Farm Management Analyst and
Vice President, MinnStar Bank, Lake Crystal, MN. (Phone — (507) 381-7960);
E-mail — kent.thiesse@minnstarbank.com)