Errata: On December 12, 2014, the ERS farm income estimates for 2008-2013 and the 2014 forecast, released on November 26, were revised to correct coding and data input sourcing problems in the underlying farm income database. Revisions also incorporate new data that became available following the November 26 release. While changes to individual State level estimates may be larger, at the U.S. level, these corrections and data revisions increased 2013 net farm income by 2 percent, to $129 billion. Also affected were the value of year-end inventories and related measures in the balance sheet, as well as production expenses, total value of production, gross and net value added, the value of inventory change, and their respective crop components in the income statement. Net farm income forecast for 2014 increased 0.4 percent, to $97.3 billion.
Farm Sector Profitability Expected To Weaken in 2014
Net farm income is forecast to be $97.3 billion in 2014, down nearly 25 percent from 2013’s estimate of $129 billion. The 2014 forecast would be the lowest since 2010, but would remain $12.3 billion above the previous 10-year average ($85 billion). After adjusting for inflation, 2013’s net farm income was the highest since 1973. In comparison, the 2014 net farm income forecast would be the sixth highest. Net cash income is forecast at $108.2 billion, down 17.5 percent from the 2013 estimate (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 carryover stocks from 2013. Net farm income reflects only the earnings from production that occurred in the current calendar year.
- Net farm income is forecast to fall by nearly 25 percent from 2013, but would still be $12.3 billion above the previous ten year average. Net cash income is forecast to decline by 17 percent from 2013.
- Total production expenses are forecast to be 5.1 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 14 percent in 2014 ($25.9 billion) due to a 23-percent increase in dairy, a 19-percent increase in cattle, and an 8-percent increase in hog receipts.
- Crop receipts are expected to decrease 11.5 percent in 2014 ($25.1 billion), led by a $10.9-billion decline in corn and a $9.5-billion drop in oil crop 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 net 4-percent decline in projected government payments.
- Farm equity is projected to reach another record, despite a substantial slowdown in asset growth and expected higher debt levels.
- Farm financial risk indicators such as the debt-to-asset ratio are expected to continue at historically low levels.
Falling Crop Prices Mean Receipts Expected To Sharply Decline in 2014
The annual value of U.S. crop production is expected to decline in 2014 from 2013’s all-time high. A large decline in crop cash receipts will be partially offset by a forecast positive value of inventory change. Declines in crop cash receipts reflect large price declines not offset by increased quantities sold for corn, oil crops, wheat, and a few other crops. Large price declines also reduce the value of any inventory gains for those crops going into storage at the end of the calendar year. Corn production has increased significantly since the 2012 marketing year, with corn exports more than doubling. Oil crop production has also increased significantly since the 2012 marketing year as have exports. Wheat production, exports, and domestic use have declined since the 2012 marketing year. A decline is expected in receipts for two large composite categories: fruit and tree nuts and vegetables and melons. Receipts for some U.S. crops are expected to increase. For example, rice receipts are expected to rise, reflecting higher anticipated rice prices in 2014.
Strong Gains Forecast for U.S. Value of Livestock Production in 2014
Strong gains in U.S. livestock value of production reflect higher prices and cash receipts, easily offsetting a negative value of inventory change. Increases in value are forecast across almost all livestock categories. The largest gains are in cattle/calves and milk. Milk gains reflect a large forecast increase in price in 2014 as well as increased milk marketings. Price increases are also forecast for chicken eggs and broilers. Exports are expected to be up for beef and veal, pork, and turkey; stable for milk; and down for broilers.
Production Expenses Continue To Increase in 2014
The projected $18-billion increase in 2014 production expenses extends the rapid upward movement in expenses that has occurred over the past 5 years. Production expenses forecast for 2014 would be the highest on record both nominally and in inflation-adjusted dollars. However, the increases in 2013 and 2014 are expected to be less than the increases in 2011 and 2012. The principal reason for the 2014 increase is higher input prices, as reflected by the Production Items, Interest, Taxes, and Wage Rates (PITW) index, which is forecast to rise 4.6 percent during the year. If realized, total production expenses would constitute 79 percent of gross farm income in 2014, the highest since 2010, indicating a return to tighter margins.
The largest increase among expenses is a $7.3-billion (28 percent) jump in livestock and poultry purchases. Miscellaneous expenses (which include items like animal health/breeding expenses, contract production fees, irrigation water, and general production/management expenses) are slated to rise $4.6 billion (14 percent). Other components that contribute significantly to the increase in expenses are total labor expenses ($2.1 billion); net rent to nonoperator landlords ($1.8 billion); marketing, storage, and transportation ($1.7 billion); real estate interest ($1.3 billion); and fertilizer ($1.0 billion). Feed expenses are expected to fall $2.9 billion in 2014.
The two major livestock-related expenses—feed and livestock/poultry purchases—are expected to move in opposite directions, resulting in a net increase of $4.3 billion (4.9 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 roughly 30 percent in annual average feed grain prices since the beginning of 2014, the annual average feed prices-paid index is forecast to fall only 4 percent because prices for other types of feed have not fallen as much. In particular, annual average prices for complete feeds—which carry the heaviest weight in the feed prices-paid index—are forecast to be nearly the same as in 2013. Livestock and poultry purchases are being driven by a predicted 42-percent increase in the annual average price for feeder steers as a result of the tight inventory of cattle and strong demand for cattle as a result of lower feed prices and high retail prices for beef.
The three major crop-related expenses—seeds, fertilizer, and pesticides—are expected to increase a combined $1.8 billion (2.8 percent). U.S. planted acreage in 2014 is forecast to rise 1.1 percent from 2013. Prices for seeds and pesticides are up slightly. The annual average price for fertilizers is expected to be largely unchanged from 2013. Fertilizer prices were below last year’s prices through July but have since risen above them. Although they will fall off seasonally during the second half of the year, fertilizer expenses are expected to remain above last year’s prices through the end of the year.
Although the fuels price paid index will be nearly the same as in 2013, fuel and oil expenses are forecast to increase 4.2 percent in 2014. The fuels and oils used during planting and harvesting seasons were purchased mostly before the significant drop in oil prices. Also, diesel prices, which have the heaviest weight in the index, have dropped off much less than gasoline prices.
These expenses, plus electricity, comprise farm-origin and manufactured input expenses, which form the bulk of material input operating expenses. Combined, farm-origin and manufactured input expenses will have more than doubled over the last decade while other expenses have risen about half that much. As a result, farm-origin and manufactured input expenses combined are expected to constitute nearly 50 percent of total expenses in 2014, up from a 42-percent share of total expenses in 2005.
Payments to Stakeholders Expected To Increase Slightly 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. Subsequently, 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 recently in 2012 and is expected to occur in 2014, as payments to stakeholders are forecast to increase by $3.8 billion (6.1 percent) while net value added is forecast to fall $27.8 billion (14.5 percent). If these changes occur, payments to stakeholders will comprise 40.7 percent of net value added in 2014.
Employee compensation (hired labor) is expected to increase $1.6 billion (5.8 percent) in 2014. Since declining in 2011, hired labor expenses will have risen 33 percent. Total labor expenses (including contract labor) are also expected to climb $2.1 billion (6.5 percent) in 2014 due to a predicted 1.7-percent increase in wage rates and a rise in total employment. Output is expected to be up on vegetable, greenhouse/nursery, and dairy farms—farms that typically employ a large share of the sector’s hired laborers.
Net rent to nonoperator landlords is forecast to increase $1.8 billion (10.2 percent) in 2014. Cash rent is forecast up, based on a small increase in total real estate values and higher planted acreage. Share rent is forecast down following the expected decrease in the value of crop production. Government payments and crop insurance indemnities received by landlords are a consistent portion of sectorwide payments and indemnities. Government payments to landlords and crop insurance indemnities received by landlords are expected to both be lower in 2014.
Total interest expenses are forecast to increase 2.5 percent in 2014 as nonreal estate interest expenses decline 11.4 percent and real estate interest expenses increase 11.9 percent Debt and interest rates are discussed in the Assets, Debt, and Wealth section.
Government Payments Forecast To Decline Slightly in 2014
U.S. government program payments are forecast to decline slightly in 2014 (see table on government payments). The continuing drought is expected to generate increased payouts from the Livestock Forage Program (LFP), which is expected to account for over 40 percent of total direct U.S. government payments in 2014. The large LFP forecast reflects changes to the program in the 2014 Farm Act. These changes raised the annual payment rates per head of qualifying livestock, increased the maximum number of drought months per year used to determine payments, and removed the requirement that producers purchase risk management coverage under the Federal crop insurance program or participate in the Noninsured Crop Disaster Assistance Programs. About 57.8 percent of LFP payments in 2014 result from the 2012 drought, 30.1 percent from the 2013 drought, and the remainder from the 2014 drought.
Conservation program payments are expected to increase 12.7 percent in 2014. The largest source of payments is the Conservation Reserve Program’s annual land rental payments.
Market prices are still high enough for most crops that 2014 payments from price-dependent government programs are anticipated to be either zero or very low. Under the provisions of the Agricultural Act of 2014, cotton producers are eligible to receive Cotton Transition Assistance Program payments for crop years 2014 and 2015, allowing cotton producers to transition into the new Stacked Income Protection Plan. The final payments under the Tobacco Transition Payment Program were made in October 2014.
2014 Farm Income Forecast: Outlook Weakens Since August Forecast
USDA’s November forecast for the 2014 farm sector income is considerably less optimistic than the August forecast. Both net farm income and net cash income for 2014 have been revised downward but still remain well above the 10-year historical average. The changed outlook is largely the result of declines in expected crop prices, reducing crop cash receipts from the August forecasts. Livestock/livestock product receipts are largely unchanged from the August forecast. Reduced expectations for farm-related income also contribute to a lower forecast for 2014 farm income. Direct U.S. government payments have been revised upward since August’s forecast, mostly due to increases in drought-induced payouts under the Livestock Forage Program. Forecast production expenses, other than livestock and poultry purchases, have remained largely unchanged since our August forecast. Predictions for the value of crop and livestock inventory changes in 2014 have remained stable since August’s forecast. The expected decline in 2014 capital consumption since August will be partially offset (in its effect on net farm income) by a smaller decline in gross imputed rental income.