2016 Farm Sector Income Forecast
Farm Sector Weakness To Continue Into 2016
Net cash farm income is forecast at $90.1 billion and net farm income at $66.9 billion for 2016. Both measures are forecast to decline for the third consecutive year after reaching record highs in 2013 for net farm income and 2012 for net cash income. Net cash farm income is expected to fall by 14.6 percent in 2016, while net farm income is forecast to decline by 17.2 percent. These declines follow the 19.8- and 12.7-percent reductions in net cash income and net farm income, respectively, that occurred in 2015.
See all data tables on farm income indicators.
- Overall, cash receipts are forecast to fall $23.4 billion (6.2 percent) in 2016 due to a $23.4-billion (12.3 percent) drop in animal/animal product receipts; crop receipts are forecast essentially unchanged from 2015. Nearly all major animal specialties—including dairy, meat animals, and poultry/eggs— are forecast to have lower receipts, including a 14.8-percent drop ($11.6 billion) in cattle/calf receipts. The slight gain in crop cash receipts is driven largely by a $5.3-billion increase in oil crop receipts, namely soybeans, while feed crops and vegetables/melons are down $2.2 billion (3.8 percent) and $1.4 billion (6.9 percent), respectively.
- While overall cash receipts are expected to decline, receipts for several commodities—including turkeys, rye, cotton (cotton lint), miscellaneous oil crops, and tobacco—are forecast to rise by 10 percent or more.
- Direct government farm program payments are forecast to increase in 2016 by $2.1 billion, or 19.1 percent, to $12.9 billion. Increases were primarily in price- and revenue-contingent farm programs.
- A 2.6-percent drop in overall production expenses forecast for 2016, on top of an 8.1-percent decline in 2015, partly offsets the forecast decline in cash receipts. Notably, expenses for inputs that typically are produced by the farm sector itself—including feed and livestock/poultry purchases—are expected down (6.1 percent). Also, expenses for fuels and oils are forecast down by 12.2 percent in 2016. If realized, expenses across each of these three categories will have fallen for 3 straight years. Interest expenses are forecast to decline 3.8 percent relative to 2015 due to falling real estate interest expenses. In contrast, cash labor expenses are forecast to increase 5.4 percent due to an increase in hired labor costs.
- The value of total farm sector equity is forecast down by $79.9 billion (3.1 percent) in 2016, due to a rise in farm sector debt and a modest decline in sector assets relative to 2015. The value of real estate, the largest component by far of the asset portfolio, is forecast down by $12.0 billion (0.5 percent). The (inventory) value of crops, animals/animal products, and purchased inputs is forecast down by $17.4 billion (9.3 percent) and the value of machinery/vehicles is expected down $22.7 billion (9.5 percent) from 2015.
- The balance sheet forecast indicates a fourth consecutive year in which farm solvency measures have declined. Liquidity positions have likewise declined, but these indicators of financial health remain near historic lows for the sector as a whole.
- Following the decline in net farm income, the rate of return on farm assets and the rate of return on farm equity are both negative for 2016, and both have declined every year since their recent peaks in 2012.
Value of Agricultural Sector Production Expected To Fall in 2016
The annual value of U.S. agricultural sector production is expected to fall 5.9 percent to $403.7 billion in 2016, almost entirely due to declines in the value of animal/animal product production (see table on value of production). The value of agricultural sector production is composed primarily of crop and livestock cash receipts adjusted for any changes in inventories and home consumption, plus farm-related income, which includes commodity insurance indemnity payments. If realized, the forecast value of crop production ($185.2 billion in 2016) would represent a small increase from 2015, the first year-over-year increase since 2013. The value of U.S. livestock production is forecast to decline 13.3 percent (to $168.6 billion) in 2016 as lower animal and animal product prices are expected to lead to large declines in both livestock receipts and the value of inventory adjustment.
The value of agricultural sector production includes several types of farm-related income in addition to cash receipts, including imputed rental income from farm dwellings and income from machine hire and custom work, forest products sold, net cash rent received, and Federal crop and livestock insurance indemnities. Indemnities received can partially cover losses to insured farmers due to natural disasters and market declines. Wheat (base acres) is the largest recipient (25.2 percent) of 2016 crop-year-to-date Federal Crop Insurance Corporation (FCIC) indemnities, followed by corn, cotton, and soybeans. Federal commodity insurance indemnities paid in 2016 are expected to decline for the third straight year, decreasing by almost $3 billion from 2015.
Total Crop Receipts Essentially Unchanged in 2016
Crop cash receipts—the cash income from crop sales during the 2016 calendar year—are forecast essentially unchanged in 2016 as prices continue to decline for most field crops. The crop cash receipts forecast of $186.5 billion represents a decline of over 24 percent in inflation-adjusted terms from the all-time high in 2012; for corn receipts, the 2012-16 decline is forecast at about 36 percent, reflecting lower U.S. corn prices. Expected further weakening of corn prices in 2016 more than offsets production gains, leading corn cash receipts to fall by almost $2 billion (4 percent) from 2015. Similarly, wheat receipts have declined since peaking in 2012. Wheat receipts are expected to decline almost $1 billion (10 percent) from 2015 as price declines accompany strong harvests. Increased soybean production is expected to be supplemented by higher prices in 2016, reflecting strong export commitments and indications of higher priced, forward sales. Thus, soybean cash receipts are expected to increase over $5 billion (16 percent) in 2016. Rice receipts are forecast to fall in 2016 while cotton receipts are expected to increase, though they are forecast to remain 30 percent below their 2012 high.
Vegetable and melon cash receipts are expected to fall almost 7 percent ($1.4 billion) in 2016. Dry bean receipts are expected to decline almost 8 percent, while potato receipts are expected to rise 4.8 percent. Cash receipts for fruits and nuts are expected to decline 7.2 percent in 2016. Sugarcane/sugarbeet receipts are expected to rise between 2 and 3 percent in 2016.
Animal/Animal Product Receipts Forecast Sharply Lower in 2016
Animal/animal product cash receipts are expected to fall $23.4 billion (12.3 percent) in 2016. Relative to 2015, prices are expected to fall for almost all major animal and animal product commodities, especially eggs.
Since reaching a record high of $49.4 billion in 2014, milk receipts are forecast to drop $15.4 billion (31.2 percent) over 2015-16 as declining prices continue to outweigh expected increases in milk production. Cash receipts from cattle and calves are also expected to decline in 2016, falling $11.6 billion (almost 15 percent) from 2015 as cattle/calf prices decline. Hog production is expected to continue rising in 2016 as the industry recovers from the porcine epidemic virus (PEDV) in 2014. Hog prices are expected to drop in 2016, leading to a forecast drop in hog cash receipts of nearly 7 percent. While animal and animal product receipts are forecast substantially down, turkeys (up $0.6 billion or 10.6 percent) and miscellaneous livestock (up $0.2 billion or 2.9 percent) are both expected to grow in 2016.
Poultry and egg cash receipts are expected to fall over 18 percent in 2016, due primarily to a decline in egg receipts. HPAI, or "bird flu," resulted in 50.4 million birds being destroyed in 2015, with turkeys and egg laying chickens suffering the largest loss in numbers and driving egg prices to new—if fleeting—highs. The egg-laying industry has returned to normalcy in post-flu 2016, and the greater production levels have resulted in large price declines, with an overall decline in 2016 chicken-egg receipts. Broiler prices are expected to decline in 2016 as production increases, leading to a decline in broiler cash receipts. In contrast, turkey production, prices, and receipts are expected to increase in 2016.
Falling Prices For Most Crops Underlie Forecast Drop in Farm Cash Receipts
Cash receipts across all commodities are expected to fall $23.4 billion (6.2 percent) in 2016. This net impact can be decomposed into a separate 'price effect' that lowers receipts by $41.3 billion and a 'quantity effect' that raises receipts by $17.5 billion (plus a $0.5-billion increase in receipts for minor commodities whose prices could not be differentiated from overall receipts).
We estimate the price effect by holding 2015 quantity sold constant while allowing commodity prices alone to change; thus, cash receipts would be $41.3 billion lower due solely to the 2016 change in price. The largest impact on cash receipts is from cattle and calves, with a nearly $15-billion decline in receipts caused by prices alone. The second largest price effect was also negative, as prices for chicken eggs lowered receipts by another $7 billion.
The quantity effect is calculated for the same commodities by holding prices constant at their 2015 levels and allowing 2015-16 production changes alone to determine cash receipts. Here, the biggest production impact on cash receipts is from soybeans, as record yields associated with the 2016 harvest raise cash receipts by a forecast $6.3 billion. Second was cattle and calves, where production gains would have led to a forecast increase in receipts of over $3 billion had prices not fallen.
Direct Government Farm Payments Forecast To Rise in 2016
Direct government farm program payments are forecast to rise by 19.1 percent in 2016 to $12.9 billion (see table on government payments). The Price Loss Coverage (PLC) and Agriculture Risk Coverage (ARC) programs are expected to account for 64.4 percent of all program payments. PLC payments in 2015 went to farms with base acres in long-grain rice (51.5 percent), peanuts (41.4 percent), and canola (7.1 percent). In 2016, about 39.2 percent of PLC payments are expected to go to producers with peanut base acres, 35.6 percent to producers with wheat base acres, almost 15 percent to producers with grain sorghum base acres, and the remainder to canola, corn, and oat base acres.
Operators with corn base acres received almost 84 percent of Agriculture Risk Coverage-County (ARC-CO) 2015 payments, reflecting both lower corn prices and the large number of corn base acres on which payments are made. Similarly, about 69 percent of 2016 ARC-CO payments are expected to go to producers with corn base acres, 18.5 percent to soybean base producers, and another 10.8 percent to producers with wheat base acres. The forecast increases in 2016 payments reflect expected declines in seasonal average crop prices. USDA payments are scheduled to begin sometime after October 1, 2016, contingent on adjusted gross income, payment limits, and other factors.
Commodity certificates, available beginning with the 2015 crop, allow producers to exchange collateral pledged to CCC for an outstanding, nonrecourse Marketing Assistance Loan (MAL). The Cotton Ginning Cost-Share (CGCS) program provides one-time cost-share assistance payments to cotton producers with an ownership share in the 2015 cotton crop plantings. They are capped at $40,000 per individual or entity and do not count against statutory payment limitations under the 2014 Farm Bill. Finally, a category of Marketing Loan Benefits (MLBs)—composed of Marketing Loan Gains (MLGs), Loan Deficiency Payments (LDPs), and the reintroduced Certificate Exchange Gains (CEG)—are forecast to collectively increase due to expected lower prices for upland cotton, wheat, and peanuts.
The Dairy Margin Protection Program (MPP) is forecast to return $11.3 million to the Federal Government, after netting fees and premiums paid by dairy producer participants from payments issued under the program. Supplemental and Ad Hoc Disaster Assistance payments are forecast to decline substantially in 2016 due to large expected declines in Livestock Forage Program (LFP), Noninsured Crop Disaster Assistance Program (NAP), and APHIS Bird Flu payments. Conservation payments—reflecting Farm Service Agency (FSA) and Natural Resource Conservation Service (NRCS) financial assistance programs—are expected to remain stable.
Production Expenses Forecast Lower in 2016, Led by Reduced Livestock, Fertilizer, and Fuel Costs
After reaching record highs exceeding $390 billion in 2014, farm production expenses are forecast to dip for the second consecutive year in 2016. The expected $9.2-billion (2.6 percent) decline is the second largest year-over-year reduction in expenditures since 2009, behind the $31.7-billion (8.1 percent) decline from 2014 to 2015. Reduced input costs are expected to ease, but not eliminate, some of the pressure from lower cash receipts.
The forecast decline in production expenses is predominantly driven by less spending on livestock/poultry purchases, fertilizer, and fuel, which should more than offset the increased outlays for hired labor and property taxes/fees.
See data on production expenses.
- Livestock and poultry purchases are expected to have the largest decline of any expense in 2016, both in absolute terms ($6.8 billion) and in percentage terms (22.5 percent), due primarily to lower feeder cattle prices.
- A double-digit decline (12.2 percent) in spending on fuels and oils is expected for the second consecutive year, with the U.S. Energy Information Agency expecting diesel and gasoline prices down over 15 percent in 2016.
- Labor costs are forecast to increase in 2016 by 5.4 percent (still slightly below 2014 highs), after dipping in 2015. Wage rate increases are putting upward pressure on hired labor costs.
- Interest expenses are expected to fall 3.8 percent in 2016, with expected declines in real estate interest offset by a modest increase in interest paid on nonreal estate debt.
- Net rent expense—the amount paid to rent land, adjusted for any payouts of the landlord’s share of government payments and/or insurance indemnities and for any expenses paid by the landlords—is forecast to decrease by 1.6 percent to $19.8 billion in 2016. As in recent years, the majority of net rent expense is forecast to be paid to nonoperator landlords (farmland owners who do not themselves farm) as opposed to landlords who are also operators.
Payments to Stakeholders Expected To Increase Slightly in 2016
In 2016, payments to stakeholders are forecast to increase by $1.0 billion (1.5 percent), while net value added is forecast to decline by 9.0 percent (see chart below for inflation-adjusted series trends). Net value added represents the sum of economic returns to all the providers of factors of production. Net value added is distributed among stakeholders who receive a fixed payment in return for their services and equity owners who share in the net farm income (profits) of the sector. 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. An exception is landlords who sign operators to share-rent agreements. Consequently, the payments that stakeholders receive can be more stable over time than net farm income received by equity owners.
See data related to payments to stakeholders.