Farm Sector Profitability Expected To Weaken in 2015
Both net cash and net farm income are forecast to decline for the second consecutive year after reaching recent historic highs in 2013 (in nominal terms). Net cash income is expected to fall by 21 percent in 2015, while the forecast 36-percent drop in net farm income would be the largest since 1983 (in both nominal and inflation-adjusted terms).
See table on farm income indicators
- Both net cash and net farm income are forecast to decline for the second consecutive year after reaching recent historic highs in 2013. Net cash income is expected to fall by 21 percent in 2015, while the forecast 36-percent drop in net farm income would be the largest since 1983 (in both nominal and inflation-adjusted terms).
- Crop receipts are expected to decrease by over 6 percent ($12.9 billion) in 2015, led by a forecast $7.1-billion decline in corn receipts, a $3.4-billion drop in soybean receipts, and a $1.6-billion drop in wheat receipts.
- Livestock receipts could fall by over 9 percent ($19.4 billion) in 2015, due to a forecast 29-percent drop in dairy and a 27-percent decline in hog receipts.
- Total production expenses are forecast to fall for the first time since 2009. Energy inputs and feed are expected to have the largest declines. Expenses are forecast to increase for labor, interest, and property taxes.
- Government payments are projected to rise 16 percent ($1.6 billion) to $11.4 billion in 2015. At $11.4 billion, 2015's payments would be the largest since 2010.
- Declining assets resulting from a modest decline in farmland values and higher debt are forecast to create a 4.8-percent decline in equity, the first drop since 2009.
- After several years of steady improvement, farm financial risk indicators such as the debt-to-asset ratio are expected to rise in 2015, indicating increasing financial pressure on the sector. However, debt-to-asset and debt-to-equity ratios remain low relative to historical levels.
Falling Crop Prices and Receipts Forecast for 2015
The annual value of U.S. agricultural sector production is expected to fall to $435.2 billion in 2015, as both crop and livestock output decline. The falling value of crop production (to a forecast $186 billion in 2015) represents a second consecutive decline from 2013’s record high of $233.2 billion, and the third straight year of declining crop cash receipts despite a net inventory reduction. The value of U.S. livestock production is also forecast to decline (to $197.2 billion) in 2015 as a large drop in receipts more than offsets the sector’s inventory expansion.
Crop cash receipts are forecast to fall 6.2 percent in 2015, led by broad declines for many field crops. Corn cash receipts are expected to decline the most, falling by $7.1 billion in 2015. Since hitting a record high in 2012, corn receipts have fallen 35 percent. Corn prices are expected to fall further in 2015, while production is also expected to drop slightly relative to 2014. Cash receipts for soybeans and wheat are also expected to decline from 2014 on quantity and price forecasts that fall by 8.5 and 13.8 percent, respectively. Rice cash receipts are expected to decline by 21.9 percent on lower expected production and calendar-year prices.
Despite an expected decrease in production, cash receipts for fruits and nuts are expected to rise slightly in 2015 due to higher prices received by farmers. Production of grapefruits and oranges (particularly non-Valencia) are both expected to fall as citrus greening has been widely reported throughout Florida. Despite continued drought conditions, California citrus production has held steady or increased relative to 2014. California has historically accounted for a large portion of U.S. vegetable and fruit/nut cash receipts. According to the Census of Agriculture, 43 percent of U.S. fruit/nut and vegetable plantings are in California. For California’s vegetable, berry, and orchard production, the impacts from reduced off-farm surface water deliveries have been partially mitigated by increased use of groundwater.
California—the second largest rice producing State—is expected to experience the largest decrease in rice production as the drought continues to affect planted acreage and yield. Drought is also expected to reduce California’s cotton receipts, particularly the long-staple varieties in which it specializes. The 385,000 acres planted to rice in California in 2015 was about 30 percent below the long run average from the years before the current drought. Similarly but in more of a long-run shift, less irrigation for the water-intensive crop and higher returns for other crops have reduced California’s cotton acreage from over 1 million acres in the 1990’s to just 161,000 acres in 2015. Likewise, corn for silage, and hay have seen large acreage reductions, but only constitute a limited share of total farm income in California and the U.S. (for more information, see the ERS drought page).
See data on value of crop production and crop cash receipts.
Value of Livestock Production Forecast Lower in 2015
Animals and animal products cash receipts increased by 44.3 percent in real terms from 2005 to 2014, but are expected to fall just over 9 percent (to $192.8 billion) in 2015. Much of the decline is due to falling dairy and hog receipts. After reaching a record high of $49.3 billion in 2014, milk receipts are expected to drop 29.0 percent in 2015 as declining prices more than offset a small expected increase in milk production. Hog production is expected to rise in 2015 as the industry recovers from the porcine epidemic virus. However, hog prices are expected to drop sharply.
Poultry and egg receipts are expected to be broadly affected by the highly pathogenic avian influenza (HPAI) in 2015, although impacts are mixed. Since first being detected in December 2014, HPAI has claimed 48 million birds, with turkeys and egg laying chickens most vulnerable. The decline in the number of both turkeys and egg laying chickens is expected to reduce production and place upward pressure on prices, leading poultry/egg receipts to increase a forecast 5.2 percent in 2015. Relatively few broilers have been infected by HPAI and U.S. broiler production is expected to increase in 2015. Still, U.S. broiler prices and cash receipts are expected to fall as HPAI-related export bans increase U.S. inventories and lead prices lower.
See data on value of livestock production and livestock/products cash receipts.
Production Expenses Forecast To Decline for the First Time in 6 Years
In 2015, total U.S. farm production expenses are expected to fall for the first time since 2009. This $1.5 billion decline, although less than 0.5 percent, would represent only the third year since 2000 where the farm sector spent less than the previous year. Production expenses had increased, on average, over 8 percent annually from 2010 to 2014. Production expenses in 2015 are forecast to be the second highest in real and nominal terms, behind only 2014.
Production expenses are expected to decline less than gross farm income in percentage terms, leading to tighter margins. The forecast decline in expenses is driven primarily by lower spending on feed, fuel, and fertilizer, which outweigh expected increases in spending on labor, interest, and property taxes/fees.
See data on production expenses.
- Even with higher expected demand for feed due to increases in the number of cattle on feed, spending for feed in 2015 is expected to be almost $5 billion (7.7 percent) lower due to lower feed prices.
- Continued rebuilding of cattle inventory and renewed poultry purchases to restore inventory depleted by the avian flu are expected to lead to a small increase in livestock and poultry purchases in 2015.
- Fuel and oil expenses are forecast to decrease by almost 28 percent to $12.8 billion in 2015. This reflects the Department of Energy’s forecast of the price of diesel and gasoline fuel, both projected down over 28 percent in 2015.
- Seed, pesticide, and fertilizer expenses, which are the principal inputs into crop production, are expected to decrease by about $2.4 billion in 2015, primarily driven by lower fertilizer expenses.
- Labor costs are expected to increase in 2015 by over 4 percent, with most of the increase driven by higher expected wage rates.
The largest forecast increase in farm production expenses is for interest outlays, up significantly due to expanded farm debt and higher interest rates. Interest paid on debt secured by real estate is expected to increase by almost 23 percent in 2015, to just under $12 billion. Interest payments for nonreal estate debt are also expected to increase substantially to $7.5 billion, a 25-percent increase over 2014.
Net rental income—the amount paid to rent land minus any expenses paid by the landlords and adjusted to account for the landlord’s share of government payments and insurance indemnities—is forecast to increase by a little over 1 percent in 2015 to $21.3 billion, with a majority of the increase going to non-operating landlords.
Property taxes and fees—which include real estate and personal property taxes as well as motor vehicle registration and licensing fees—are expected to increase by over 10 percent to $15.8 billion in 2015, driven primarily by the increase in the (taxes) prices-paid index.
Miscellaneous expenses—which include insurance premiums, spending on irrigation, production contract fees, and grazing fees—are expected to increase in 2015. Approximately one-fourth of the rise is due to higher crop insurance premiums.
Payments to Stakeholders Expected To Increase in 2015
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 often move in a different direction than net value added. In 2015, payments to stakeholders are forecast to increase by $5 billion in 2015 (7.8 percent), while net value added is forecast to fall over $27 billion (17.8 percent).
See data related to payments to stakeholders.
Government Payments Forecast To Increase in 2015
U.S. government payments to farmers are forecast to rise in 2015 to $11.4 billion (see table on government payments). Because commodity prices are forecast to be low in 2015, commodity-based programs—such as the Price Loss Coverage (PLC) and Agricultural Risk Coverage (ARC) programs—are now the largest payment programs to farmers. Program payments depend on crop prices and revenues, as well as a one-time farm operator decision on which program to enroll in. Almost all corn and soybean base acres, and almost 60 percent of wheat, were enrolled in the ARC-County program, and corn acreage is expected to receive the most payments in 2015. PLC was the popular choice for rice, peanuts, canola, barley, and grain sorghum, and at least for 2015 long-grain rice and peanuts are expected to receive the most payments. Increased payments to existing price-based programs, including the marketing loan gain and loan deficiency payments programs, likewise reflect expected declining commodity prices in 2015. Increases in conservation spending reflect continued increases in Natural Resources Conservation Service (NRCS) financial assistance.
The largest decline in payments is expected in the Supplemental and Ad Hoc Disaster Assistance category, down $3.1 billion from 2014 to $1.6 billion in 2015. 2014’s payments were higher than average due to retroactive (to 2011) Livestock Forage Disaster program payments. In 2015, payments under this program are expected to decline. This decline will be partially offset by indemnity payments under an Animal and Plant Health Inspection Service (APHIS) program for losses from HPAI (Highly Pathogenic Avian Influenza, or "Bird Flu") on U.S. poultry operations in 2015. Declines in government payments categories are also expected as a result of discontinuing previous farm bill programs—including the average crop revenue election (ACRE) program, the direct and counter-cyclical payment program, and the Tobacco Buyout—and completion of the 2014 Farm Bill’s transitory program for upland cotton (CTAP).
2015 Farm Income Forecast: Net Farm Income Outlook Weakens Since February's Forecast
USDA’s August 2015 forecast for the 2015 farm sector net farm income is considerably less optimistic than the February forecast. Net farm income for 2015 has been revised downward compared to the February forecast and is the lowest since 2006. The changed outlook for net farm income is largely the result of a downward revision in the value of inventory change for crops and a significant increase in capital consumption. These more than offset an upward revision in crop receipts relative to the view last February. The less-inclusive net cash income measure excludes the inventory adjustment and capital consumption effects, and the forecast for net cash income for 2015 has improved since the February forecast, as a slight upward revision in cash expenditures is expected to be more than offset by an upward revision in anticipated crop receipts.