Note: The data tables referenced on this page are all available in the ERS data product, Farm Income and Wealth Statistics.
Net Farm Income Forecast To Fall in 2014
Net farm income is forecast to be $113.2 billion in 2014, down 13.8 percent from 2013’s forecast of $131.3 billion. If realized, the 2014 forecast would be the lowest since 2010, but would still remain more than $25 billion above the previous 10-year annual average. After adjusting for inflation, 2013’s net farm income is expected to be the highest since 1973; the 2014 net farm income forecast would be the fifth highest. Net cash income is forecast at $123 billion, down 6 percent from the 2013 forecast (see table on farm income indicators ). Net cash income is projected to decline less than net farm income primarily because it includes the sale of more than $10 billion in carryover stocks from 2013. Net farm income reflects only earnings from current calendar-year production.
- Total production expenses are forecast to be 4 percent higher in 2014, which would be the fifth consecutive increase since last falling in 2009.
- Livestock receipts are expected to increase by more than 15 percent in 2014, due to a 21-percent increase in dairy, a 20-percent increase in hog, and a 15-percent increase in cattle receipts.
- Crop receipts are expected to decrease 7 percent in 2014 ($15.2 billion), led by a $12.8-billion decline in corn receipts.
- The elimination of direct payments under the Agricultural Act of 2014 is partially offset by higher payments for supplemental disaster assistance, resulting in a 15-percent decline in projected government payments.
- Farm equity is projected to reach another record, despite an expected slowdown in asset growth and the expectation of higher debt levels.
- Farm financial risk indicators such as the debt-to-asset ratio are expected to continue at historically low levels, indicating continued financial health for the sector.
Falling Crop Prices Expected in 2014
The annual value of U.S. crop production is expected to decline 10.6 percent in 2014 from 2013’s predicted all-time high. Expected declines in cash receipts are especially large for feed crops such as corn. Corn receipts are expected to experience the largest dollar decline in 2014 receipts among farm commodity categories. While U.S. corn production is forecast to reach a record level in 2014, the annual corn price is expected to fall significantly (by 32.4 percent), lowering both corn receipts and the value of production. Corn exports are also expected to decline in the 2014 corn marketing year. Receipts for wheat are also expected to decline, reflecting lower production and price and an expected drop in exports in marketing year 2014.
Declines in soybean receipts are anticipated as higher production and quantities sold are more than offset by large price declines (11.3 percent). Soybean exports are expected to increase in the 2014 soybean marketing year. A large increase in peanut production is expected to be more than offset by a large drop in the annual peanut price, resulting in lower peanut receipts.
Higher expected hay receipts reflect forecasts of higher production, drawing down of hay inventories, and higher average prices. The expected increase in rice receipts mostly reflects higher forecast rice production in 2014. Both domestic and foreign use is expected to increase in the 2014 rice marketing year. Higher cotton lint and cottonseed receipts reflect substantial increases in production, which more than offset anticipated declines in cotton lint and seed prices.
Despite predictions of increased production, cash receipts for dry beans and potatoes are expected to decline in 2014 as price declines are forecast for both. A decline of $2.3 billion is forecast for receipts from fruits and nuts in 2014, reflecting expected declines in production of cranberries, grapes, peaches, pears, grapefruit, lemons, and oranges.
Record Prices Expected To Drive Livestock Receipts in 2014
Record-high annual prices are expected for livestock, dairy, and poultry products. Large gains are expected in receipts from sales of cattle and calves, hogs, milk, broilers, and eggs. While beef production is expected to decline in 2014, the annual cattle price is expected to increase dramatically (20.4 percent), to its highest level on record. Cattle and beef prices have benefited from foreign demand, especially Asia, and low cattle inventories. Hog receipt forecasts also reflect declining production accompanied by record high prices. Forecasts for wholesale milk, broilers, and chicken egg receipts reflect expectations of higher production accompanied by record annual average prices. Sluggish growth in broiler production is placing upward pressure on prices. High turkey prices are expected in 2014. Chicken egg receipts have benefited from strong demand and increased production. Strong demand, both foreign and domestic, is contributing to record high milk prices.
Production Expenses Continue To Increase in 2014
The projected $14.2-billion increase in 2014 production expenses extends a 5-year upward trend. Forecast production expenses in 2014 would be the highest on record both nominally and in inflation-adjusted dollars. However, expected increases in 2013 and 2014 are significantly smaller than increases experienced in 2011 and 2012. The principal reason for the projected 2014 increase is higher input prices, as reflected by the Production Items, Interest, Taxes, and Wage Rates (PITW) index, which is forecast to rise 4.2 percent during the year. If realized, total production expenses would constitute 77 percent of gross farm income in 2014, the highest since 2010, indicating a return to tighter margins.
Livestock and poultry purchases account for the largest portion of the increase in total expenses at $5.4 billion (a 22.6-percent increase over 2013 purchases). Other components that contribute to the increase, but rise by smaller amounts, are fuels and oils (up $1.0 billion); repairs and maintenance ($1.1 billion); total labor expenses ($1.4 billion); and miscellaneous expenses (which include items like animal health and breeding expenses, contract production fees, irrigation water, and general production and management expenses). Seed and fertilizer expenses will also rise nearly $1 billion. Feed expenses should fall $1.7 billion and net rent to nonoperators is expected to be down $0.9 billion.
The two major livestock-related expenses—feed and livestock/poultry purchases—are expected to move in opposite directions, but together are expected to rise by $3.7 billion (4.3 percent). The projected decrease in feed expenses and the increase in livestock and poultry purchases are both primarily the result of price changes. Despite a drop of 12.5 percent in feedgrain prices since the beginning of the year and the likelihood that they will drop further, the annual average feed prices-paid index is forecast to fall only 2.7 percent in 2014 because prices for other types of feed have not fallen off. In particular, the price of complete feeds, which carry the heaviest weight in the feed prices-paid index, has increased 5 percent since January. Livestock and poultry purchase expenses are being driven by a predicted 24-percent increase in the annual average price for feeder steers as a result of reduced inventory for cattle, especially feeder cattle, and increased demand for cattle as a result of lower feed prices and strong demand for beef.
The three major crop-related expenses—seeds, fertilizer, and pesticides—are expected to increase a combined $2.3 billion (3.5 percent) in 2014. Prices for all three inputs are up. Fertilizer prices have risen 17 percent since the beginning of the year and, although they will fall off during the second half of the year, are expected to remain above last year’s level. The 2014 forecast of the number of planted acres is up 2.4 percent from 2013. The increase in planted acres coupled with a projected 3.6-percent increase in fuel prices is responsible for the projected rise in fuel expenses.
These expenses, plus electricity, are the components of farm-origin and manufactured input expenses that form the bulk of material input operating expenses. Combined, farm-origin and manufactured input expenses are expected to constitute nearly 49 percent of total expenses in 2014, up from a 42-percent share in 2005.
Payments to Stakeholders Expected To Rise Moderately in 2014
Net value added is distributed among stakeholders and equity owners. Stakeholders provide the hired labor, leased capital, and rental land used in agricultural production. Since stakeholders do not own what is produced, they do not share in the risks involved in producing highly variable agricultural output. As a result, the payments that stakeholders receive are more stable over time than net returns to the owners of agricultural production. Payments to stakeholders can move in a different direction than net value added, as occurred in 2009 and 2011 and is predicted to occur again this year. In 2014, payments to stakeholders are forecast to rise by $1.2 billion (2.0 percent) while net value added is forecast to fall $16.9 billion (8.8 percent). If these changes occur, payments to stakeholders will comprise 35 percent of net value added in 2014, up from 32 percent in 2013.
Employee compensation (hired labor) is expected to increase $1.4 billion (5.1 percent) in 2014 due to a predicted 1.8-percent increase in wage rates and a 2.3-percent rise in total output. Since declining in 2011, hired labor expenses will have risen 28 percent. Hired labor accounts for all of the increase in total labor expenses as an expected drop in production of vegetables and fruits/nuts (which are heavily reliant on contract labor) should result in a small reduction in contract labor expenses. Output on greenhouse/nursery and dairy farms—farms that typically employ a large share of the sector’s hired labor—will likely be up 3 percent. Labor use in the production of feed grains and oilseeds will be constrained by falling prices for these crops.
In line with the 10.6-percent drop in the value of crop production, net rent to nonoperator landlords is forecast to fall $0.9 billion (5.7 percent) in 2014. This fall follows a 29.8-percent increase over the previous 2 years, spurred by the expansion in the value of crop production. Cash rent is forecast to increase 4.2 percent, based on a relatively small increase in total real estate values and higher planted acreage. Share rent is forecast down 10 percent, following the decrease in the value of crop production. Government payments and crop insurance indemnities received by landlords are a consistent proportion of sectorwide payments and indemnities and are expected to be lower in 2014.
Total interest expenses are forecast to increase 4.3 percent in 2014 as nonreal estate interest expenses climb 1.5 percent and real estate interest expenses increase 5.9 percent. Debt and interest rates are discussed in the Assets, Debt, and Wealth section.
Government Payments Forecast To Decline in 2014
Government program payments going directly to producers are expected to total over $9 billion in 2014, representing a 15-percent decrease from 2013 (see table on government payments). The 2014 forecast includes payments made by the U.S. Government in 2014 for losses incurred in earlier years. Market prices are still high enough for most crops that 2014 payments from price-dependent programs (such as countercyclical payments, marketing loan gains, loan deficiency payments, and milk income loss payments) are anticipated to be zero for all but a few commodities (peanuts, upland cotton). Farmers are currently expected to receive Average Crop Revenue Election (ACRE) payments in 2014 from their 2013 crop-year revenue losses, mostly from corn.
Under the provisions of the Agricultural Act of 2014, direct payments are largely phased out. Cotton producers, however, are eligible to receive Cotton Transition Assistance Program (CTAP) payments for crop years 2014 and 2015 as they transition into coverage authorized by the new Stacked Income Protection Plan (STAX). The Tobacco Transition Payment Program paid out 95 percent of its 2014 payments in February, and will make final payments in October.
Supplemental and ad hoc disaster assistance payments are forecast to increase significantly in 2014. The continuing drought is expected to generate increased payouts, especially from the Livestock Forage Program (LFP), which is expected to account for over 78 percent of all other government payments in 2014. About 51 percent of LFP payments in 2014 result from the 2012 drought, 35 percent from the 2013 drought, and the remainder from the current 2014 drought.
2014 Farm Income Forecast: Improved Outlook since February’s Forecast
USDA’s August forecast for the 2014 farm sector economy is more optimistic than the one issued last February. Both forecast net farm income and net cash income for 2014 have been revised upward. Net cash income excludes noncash items included in net farm income, such as value of inventory adjustment, gross imputed rental income, nonmonetary compensation of hired labor, and capital consumption.
Our improved outlook is largely the result of improved prospects for the value of both crop and livestock production. The more favorable forecasts for crops and livestock reflect more optimistic price expectations over calendar-year 2014, relative to expectations in February. Many of the livestock categories are now anticipated to benefit from record annual average prices in 2014. Direct U.S. government payments have been revised upward since February’s forecast, mostly due to drought-induced payouts under the Livestock Forage Program. Production expenses are now forecast to be $20 billion higher than they were in February, with increases in the feed expense and livestock purchase forecasts accounting for most of the change.