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Farm sector profits forecast to stabilize in 2017

Wednesday, November 29, 2017

After several years of decline, net farm income in 2017 for the U.S. farm sector as a whole is forecast to be relatively unchanged at $63.2 billion in inflation-adjusted terms (up about $0.5 billion, or 0.8 percent), while inflation-adjusted U.S. net cash farm income is forecast to rise almost $2.0 billion (2.1 percent) to $96.9 billion. Both profitability measures remain below their 2000-16 averages, which included substantial increases in crop and animal/animal product cash receipts from 2010 to 2013. Net cash farm income and net farm income are two conventional measures of farm sector profitability. Net cash farm income measures cash receipts from farming as well as cash farm-related income, including government payments, minus cash expenses. Net farm income is a more comprehensive measure that incorporates noncash items, including changes in inventories, economic depreciation, and gross imputed rental income. Find additional information and analysis on ERS’s Farm Sector Income and Finances topic page, released November 29, 2017.

Texas accounted for 6 percent ($21 billion) of U.S. farm sector cash receipts in 2016

Wednesday, October 11, 2017

Each August, as part of the its Farm Income data product, ERS produces estimates of the prior year’s cash receipts—the cash income the farm sector receives from agricultural commodity sales. This data product includes State-level estimates, which can help offer background information about States subject to unexpected changes that affect the agricultural sector, such as the recent hurricane that struck Texas. In 2016, U.S. cash receipts for all commodities totaled $352 billion. Texas contributed about 6 percent ($21 billion) of that total, behind only California and Iowa. Cattle and calves accounted for 40 percent ($8 billion) of cash receipts in Texas, compared to 13 percent nationwide. Only Nebraska had higher cash receipts for cattle and calves in 2016. Texas led the country in cash receipts from cotton at almost $3 billion (13 percent of the State’s receipts), accounting for 46 percent of the U.S. total for cotton. Milk and broilers each accounted for 9 percent of cash receipts in Texas. The State ranked sixth in both milk and broiler cash receipts nationwide. This chart uses data from the ERS U.S. and State-Level Farm Income and Wealth Statistics data product, updated August 2017.

2017 net farm income and net cash farm income forecast up over 2016

Wednesday, August 30, 2017

After several years of declines, inflation-adjusted U.S. net farm income is forecast to increase about $0.9 billion (1.5 percent) to $63.4 billion in 2017, while inflation-adjusted U.S. net cash farm income is forecast to rise almost $9.8 billion (10.8 percent) to $100.4 billion. The expected increases are led by rising production and prices in the animal and animal product sector compared to 2016, while crops are expected to be flat. The stronger forecast growth in net cash farm income, relative to net farm income, is largely due to an additional $9.7 billion in cash receipts from the sale of crop inventories. The net cash farm income measure counts those sales as part of current-year income, while the net farm income measure counts the value of those inventories as part of prior-year income (when the crops were produced). Despite the forecast increases over 2016 levels, both profitability measures remain below their 2000-16 averages, which included surging crop and animal/animal product cash receipts from 2010 to 2013. Net cash farm income and net farm income are two conventional measures of farm sector profitability. Net cash farm income measures cash receipts from farming as well as farm-related income including government payments, minus cash expenses. Net farm income is a more comprehensive measure that incorporates non-cash items, including changes in inventories, economic depreciation, and gross imputed rental income. Find additional information and analysis on ERS’s Farm Sector Income and Finances topic page, released August 30, 2017.

After years of growth, U.S. farm real estate values have stalled since 2014

Friday, June 30, 2017

In recent years, farm real estate (including farmland and buildings) has accounted for about 80 percent of the value of U.S. farm assets—amounting to about $2.4 trillion in 2015. Strong farm earnings and historically low interest rates have supported the increase in farmland values since 2009. Since 2014, farm real estate values in many regions have leveled off; and, in 2016, the national average per-acre value declined slightly. This is partly a response to the recent declines in farm income, which may temper expectations of future farm earning potential. In addition, the 2016 USDA 10-year commodity outlooks suggest that the prices of major commodities will all stabilize at, or grow modestly from, their current price levels—which are significantly lower than those in 2011. Expectations of interest rate increases, which have been noted in some U.S. farm regions, also put downward pressure on land values. Given that farm real estate makes up such a significant portion of the balance sheet of U.S. farms, changes in its value can affect the financial well-being of individual farms and the farm sector. Over 60 percent of U.S. farmland was owner-operated in 2014; for these owners, increases in real estate values make it easier to obtain credit and service debt. For the farmers who rent the remaining 39 percent of farmland, higher real estate values can lead to higher rent expenses. This chart appears in the ERS topic page for Farmland Value, updated April 2017.

Larger family farms show stronger financial performance than smaller farms

Tuesday, May 9, 2017

Ongoing innovations in agriculture have enabled a single farmer, or farm family, to manage more acres or more animals. Farmers who take advantage of these innovations to expand their operations can reduce costs and raise profits because they can spread their investments over more acres. In 2015, larger family farms displayed stronger financial performance, on average, than smaller farms. For example, 74 percent of very large family farms—those with gross farm cash income (GCFI) of $5 million or more—had estimated operating profit margins (OPM) of at least 10 percent. This represents the safer yellow and green zones, with lower financial risk. By comparison, 54 percent of midsize family farms (GCFI of $350,000 to $999,999) also had an OPM of at least 10 percent. Most small farms (GCFI under $350,000) in the red zone (OPM under 10 percent), had a negative OPM, the result of losses from farming. Small farms account for 90 percent of U.S. farms, but only contribute about a quarter of the value of production. The majority of their operator households’ income comes from off-farm sources. This chart appears in the March 2017 Amber Waves data feature, "Large Family Farms Continue To Dominate U.S. Agricultural Production."

Taxable farm income has fluctuated over time

Tuesday, April 18, 2017

Nearly 90 percent of family farms are structured as sole proprietorships. These entities are not subject to pay income tax themselves; rather, the owners of the entities (farmers) are taxed individually on their share of income. Numerous Federal income tax law provisions allow farmers to reduce their tax liabilities by reporting losses. From 1998 to 2008, for example, taxable losses from farming (the red area of the chart) rose from $16.7 billion to $24.6 billion. This was due, in part, to changes in the tax code beginning in 2001 that expanded the ability of farms to deduct capital costs—such as tractors and machinery—in the year the equipment was purchased and used. Between 2007 and 2014, strong commodity prices bolstered farm-sector profits (the green area), but taxable net farm income (the blue line) remained negative. Farm sole proprietors, in aggregate, have reported negative net farm income since 1980; in other words, they’ve reported a farm loss due to higher farm expenses than income. In 2014, the latest year for which complete tax data are available, U.S. Internal Revenue Service data showed that nearly 67 percent of farm sole proprietors reported a farm loss. This chart appears in the ERS topic page for Federal Tax Policy Issues, updated January 2017.

Households operating larger farms get more of their income from farming

Friday, March 24, 2017

In 2015, farm households had a median total income of $76,735 per household—a third greater than that of all U.S. households ($56,516). Median total household income increased with farm size, with the median income of households operating small family farms approximating the U.S. median household and those operating larger family farms far exceeding it. The source of household income also varied with farm size: As farm size decreased, off-farm income represented a larger share of total household income. Households operating midsize and large farms (gross cash farm income or GCFI greater than $350,000) earned the majority of their total household income from their farm operations. By comparison, more than half of households operating small farms (GCFI less than $350,000) incurred small losses from farming, so the majority of their total household income came from off-farm sources. Wages from off-farm jobs accounted for more than half of off-farm income across all farm households. Farm households also receive significant income from transfers (such as Social Security or private pensions), interest and dividends, and non-farm business income. This chart appears in the ERS data product Ag and Food Statistics: Charting the Essentials, updated March 2017.

U.S. farm sector’s working capital expected to continue weakening in 2017

Monday, February 27, 2017

Farm financial liquidity describes how easily the U.S. farm sector can convert assets to cash in order to meet its short-term debt obligations. One measure of liquidity is working capital, the difference between current assets (such as cash and inventory) and short-term debt. Higher working capital means better financial health for the farm sector. ERS expects that working capital for the farm sector could contract to $48 billion by the end of 2017. The erosion in working capital was caused both by the reduction in the value of current assets (down $87 billion since 2012) and growing current debt (up $30 billion since 2012). Although working capital has weakened since ERS started tracking this measure in 2012, this decline followed record highs in net cash farm income from 2011 to 2013. The balance sheet forecast also indicates that farm solvency ratios—which measure whether debt can be met in a timely manner—are favorable compared to 25-year historical averages. However, farm solvency has weakened for 5 consecutive years; taken together with the decline in working capital, this pattern reflects a modest increase in farm financial risk exposure for the sector as a whole. This chart is based on the ERS Farm Income and Wealth Statistics data product, updated February 7, 2017.

A typical  farm’s income varies more than for all farms as a whole

Wednesday, February 22, 2017

Commercial farm income is highly variable from year to year, fluctuating with output and prices. Income variability can affect key farm decisions, including how much to invest in farm assets (such as land or machinery) and how much to save as a cushion for low-earning years. Aggregate statistics, like the median income for all farms, can provide useful insight into how the farm sector as a whole fares from year to year—but can mask considerable variation for individual farms. For example, farms in one region might be thriving, whereas in another region they might be experiencing low incomes due to a localized drought. Between 2000 and 2014, median farm income for commercial farms ranged from about $70,000 to $180,000, with income fluctuating between consecutive years an average of $20,000. By comparison, a typical (representative) commercial farm with the same average income as the median commercial farm (about $120,000) could see its income fluctuate much more—with an average income swing of $86,000. This chart appears in the ERS report “Farm Household Income Volatility: An Analysis Using Panel Data From a National Survey,” released February 2017.

U.S. farm sector’s net farm income forecast to continue to decline in 2017

Tuesday, February 7, 2017

Net farm income is a conventional measure of farm sector profitability that is used as part of the U.S. Gross Domestic Product calculation. Following several years of record highs, net farm income trended downward from 2013 to 2016. For 2017, ERS forecasts net farm income will fall to $62.3 billion ($54.8 billion in inflation-adjusted terms). If realized, this would be an 8.7 percent decline from the prior year and a decline of 49.6 percent from the record high in 2013. The expected decline in 2017 net farm income is driven by a forecast reduction in the value of production. Crop value of production is forecast down $9.2 billion (4.9 percent), while the value of production of animal/animal products is forecast to decline by less than $1 billion (0.5 percent). Find additional information and analysis in ERS’ Farm Sector Income and Finances topic page, released February 7, 2017.

U.S. farm sector income forecasts down for 2016, led by lower animal/animal products receipts

Wednesday, November 30, 2016

Net cash farm income and net farm income are two conventionally used and related measures of farm sector profitability. The first measure includes cash receipts, government payments, and other farm-related cash income net of cash expenses, while the second is more comprehensive and incorporates noncash transactions such as implicit rents, changes in inventories, and economic depreciation. Following several years of high income, both measures have trended downward since 2013. ERS forecasts that net cash farm and net farm income for 2016 will be $90.1 billion and $66.9 billion, respectively, or $80.9 billion and $60.1 billion, respectively, when adjusted for inflation (in 2009 dollars). Cash receipts declined across a broad set of agricultural commodities in 2015, and are expected to fall further in 2016—primarily for animal/animal products. Production expenses are forecast to contract in 2016, but not enough to offset the commodity price declines. Net cash farm and net farm income are below their 10-year averages, which include surging crop and animal/animal product cash receipts from 2010 to 2013. Find additional information and analysis in ERS’ Farm Sector Income and Finances topic page, updated November 30, 2016.

Decline in agricultural sector’s net value added borne by equity owners

Wednesday, September 28, 2016

ERS forecasts net value added will decline by 6.1 percent and payments to stakeholders will increase by 0.9 percent ($0.5 billion) in 2016. Net value added represents the sum of economic returns to all stakeholders and equity owners. Stakeholders provide the hired labor, leased capital, and rental land used in agricultural production, but in most cases do not directly share risk in the short term. Stakeholders receive a fixed ¬payment in return for their services while equity owners share in the profits (net farm income). In general, the payments that stakeholders receive adjust more slowly over time than net returns to the equity owners of agricultural production. Find additional information and analysis in ERS’ Farm Sector Income and Finances topic page, released August 30, 2016.

Reduced cash receipts lead to lower expected net cash and net farm income for the third straight year

Tuesday, August 30, 2016

Net cash farm income (NCFI) and net farm income (NFI) are two common measures of farm sector profitability. NCFI includes cash receipts and farm program government payments less cash expenses; it represents the net cash income available to farmers in a given year. NFI is a broader measure that represents the net value added to the U.S. economy by the agricultural sector, and includes noncash transactions such as changes in inventories, capital replacement, and implicit rent and expenses related to the farm operators’ dwelling. Following several years of high income, both measures have trended downward since 2013. ERS forecasts that, in 2016, net cash farm and net farm income will fall to $94.1 billion and $71.5 billion, respectively ($84.6 billion and $64.3 billion, when adjusted for inflation); these values are below their 10-year averages in both nominal and inflation-adjusted terms. Lower forecasts for NCFI and NFI reflect price declines across a broad set of agricultural commodities in 2015 that are expected to continue in 2016. A forecast increase in government payments and decline in production expenses in 2016 only partially offset the drop in commodity receipts. Find additional information and analysis on the 2016 farm sector income forecast in ERS’ Farm Sector Income and Finances topic page, released August 30, 2016.

Few farms affected by 2014 Farm Act eligibility income cap

Monday, August 8, 2016

The 2014 Farm Act revised the maximum income limitations (the income cap) that determine eligibility for most commodity and conservation programs and payments by replacing the separate limits on farm and nonfarm income specified in the 2008 Farm Act with a single total adjusted gross income cap of $900,000. Based on data for 2009-14--a period of overall increasing farm sector income--a comparison of the impact of the income caps imposed by the 2008 and 2014 Farm Acts finds that the number of potentially ineligible farms increases over the period under both income caps. The potential number of farms affected by the 2014 income cap is below the number affected by the 2008 income caps, averaging 1,500 farms per year (about 0.1 percent of all farms) for the period 2009-14. This chart is found in the August 2016 Amber Waves feature, "Farm Bill Income Cap for Program Payment Eligibility Affects Few Farms."

Farm sector real estate debt trends vary by lender

Friday, July 29, 2016

Since the late 1970s, the Farm Credit System (FCS) has been the largest U.S. lender to the farm sector for loans secured by real estate. The trend in outstanding real estate debt held by FCS closely tracks the overall sector real estate debt trend. Debt held by FCS peaked in the early 1980s and then declined for the next decade before increasing to an inflation-adjusted high of $81.7 billion in 2014. Prior to the 1990s, commercial banks held substantially less debt than the FCS. However, farm sector real estate debt held by commercial banks has increased sharply since the 1990s, leading commercial banks to become the second most prominent farm real estate lender. Farmer Mac, though small relative to FCS and commercial banks, has also shown growth in real estate debt outstanding during the period. While the real estate debt outstanding at FCS, commercial banks, and Farmer Mac has grown sharply since the 1990s, the trend has held relatively flat or declined modestly for the other lenders in that period. This chart is found in the July 2016 Amber Waves article, “Trends in Farm Sector Debt Vary by Type of Debt and Lender.”

Recent changes in farm real estate values exhibit wide variation across States

Wednesday, July 20, 2016

Between 2010 and 2015, change in inflation-adjusted average farm real estate values (the value of farmland and buildings) varied widely across the 48 contiguous States. The value of farm real estate is expected to change over time to reflect changes in expectations for income streams from future use—including both agriculture and nonagricultural uses. Over 2010-15, the largest State percentage increases in farm real estate values occurred in the Northern Plains and Midwest regions, presumably based on expectations of high farm-based earnings. In contrast, while farmland values in the Northeast region are typically among the highest in the country, this is largely due to urban proximity rather than agricultural returns, and declines in farm real estate values generally reflect regional impacts from the downturn in the residential housing market. This map is based on the data visualization, Charts and Maps of U.S. Farm Balance Sheet Data, in the Farm Income and Wealth Statistics data product, February 2016.

Most U.S. farm estates exempt from Federal estate tax in 2015

Monday, June 20, 2016

The Federal estate tax applies to the transfer of property at death. Under present law, the estate of a decedent who, at death, owns assets in excess of the estate-tax exemption amount ($5.43 million in 2015) must file a Federal estate-tax return. However, only those returns that have a taxable estate above the exempt amount (after deductions for expenses, debts, and bequests to a surviving spouse or charity) are subject to tax at a graduated rate, up to a current maximum of 40 percent. Based on simulations using farm-level survey data from USDA’s 2014 Agricultural Resource Management Survey (ARMS), about 3 percent of farm estates would have been required to file an estate tax return in 2015, while 0.8 percent of all farm estates would have owed any Federal estate tax. This chart is based on the ERS topic page on Federal Estate Taxes.

U.S. direct government payments to farmers expected to rise in 2016

Wednesday, June 15, 2016

“Direct” farm program payments are those paid directly from the U.S. Government to farmers and include fixed payments, crop price- and revenue-based payments, and other payments such as conservation payments and disaster relief. Direct farm program payments are forecast to rise by about 31 percent in 2016 to $13.9 billion. The forecast reflects changes made in the 2014 Farm Act that eliminated several programs and added new price- and revenue-based support programs in an environment of declining crop prices. The largest of these (in terms of payouts in 2015) were the Price Loss Coverage (PLC) and Agricultural Risk Coverage (ARC). Although these programs commenced in 2014, payments corresponding to 2014 crop production (based on average prices received over the 2014-2015 crop marketing year) were made in the latter part of 2015. PLC and ARC together are expected to account for over $9 billion in 2016—about 96 percent of all crop price- and revenue-based payments. The majority of ARC payments were paid to farms with a history of corn production, followed by wheat and soybeans. PLC payments were primarily made to farms with a history of long-grain rice, peanuts, and canola production. This chart is found in the ERS topic page on the 2016 Farm Sector Income Forecast.

Share of highly leveraged farm businesses on an upward trend since 2012

Tuesday, April 26, 2016

Farm businesses—those farms with at least $350,000 in annual sales or farms with lower revenues where the operator’s primary occupation is farming—account for more than 90 percent of U.S. farm sector production, and hold 71 percent of all farm assets and 80 percent of farm debt, according to USDA’s 2014 Agricultural Resource Management Survey (ARMS). Debt-to-asset (D/A) ratios measure the amount of assets that are financed by debt, and are an indicator of the level of a farm’s solvency. The share of farm businesses that are highly leveraged (defined as having debt-to-asset ratios greater than .40) has trended upward since 2012 and is forecast to increase slightly in both 2015 and 2016. Farm businesses specializing in crops are forecast to have higher shares of both highly and very highly leveraged operations (with over .70 D/A ratios) than those specializing in animals/animal products. In 2016, the share of very highly leveraged crop farms is expected to reach the highest level since 2002. Because lending institutions consider D/A (along with other measures reflecting the chance of default) to assess credit worthiness of farms, some of these highly and very highly leveraged farm businesses may have difficulty securing a loan. This chart updates one found in the ERS report, Debt Use by U.S. Farm Businesses, 1992-2011, April 2014.

Taxable U.S. net income from farming remained negative in 2013

Thursday, April 14, 2016

U.S. farm households generally receive income from both farm and off-farm activities, and for many, off-farm income largely determines the household’s income-tax liability. Since 1980, farm sole proprietors, in aggregate, have reported negative net farm income for tax purposes. From 1998 to 2008, both the share of farm sole proprietors reporting losses and the total amount of losses reported generally increased, due in part to deduction allowances for capital expenses. Since 2007, strong commodity prices bolstered farm-sector profits and the net losses from farming declined, leading to a peak in taxable profits (though still a negative taxable amount on net) in 2012. In 2013, the latest year for which complete tax data are available, U.S. Internal Revenue Service data showed that nearly 68 percent of farm sole proprietors reported a farm loss, totaling $25 billion. The remaining farms reported profits totaling $17 billion. This chart is found on the ERS Federal Tax Issues topic page, updated April 2016.

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