Farm Business Income
Farm Business Net Cash Farm Income Forecast Down for Second Consecutive Year in 2016
Farm businesses account for less than half of U.S. farms, but contribute over 90 percent of the farm sector’s value of production and hold the majority of its assets and debt. Average net cash farm income (NCFI) is forecast at $104,300 for farm businesses* in 2016, down 2.2 percent from 2015 and the lowest level since 2011 in both nominal and real terms. This slight dip compares with the forecast decline in overall farm sector NCFI of nearly 15 percent.
Lower NCFI means less cash available to draw down debt, pay taxes, cover family living expenses, and invest. It is not a comprehensive measure of profitability, however, since it does not account for noncash income changes, including adjustments in farm inventory, accounts payable, accounts receivable, and capital consumption.
The 2.2-percent decline expected in 2016 follows a double-digit decline in 2015 after average NCFI reached an historic high of $121,600 in 2014. Average net cash farm income is generally expected to be lower in 2016 for farm businesses specializing in livestock production and higher for those specializing in crops, which suffered significant declines (exceeding 25 percent for some crop specializations) in 2015.
As with the farm sector as a whole, farm businesses are expected to incur lower expenses in 2016, particularly for livestock/poultry purchases, fuel, and fertilizer. Cash expenses for U.S. farm businesses are forecast down about 4 percent in 2016.
- Farm-level average net cash income by farm typology and sales class
- Farm business average net cash income by commodity specialization and region
Net Cash Farm Income Higher for All Crop Farm Businesses But Specialty Crops in 2016
After sharp declines in 2015, average net cash farm income for most farm businesses specializing** in crop production is expected to improve. NCFI for farm businesses specializing in mixed grains (10.4 percent), corn (15.1 percent), soybeans and peanuts (11.8 percent), and other field crops (7.1 percent) are expected to rise, while NCFI for specialty crop farm businesses (fruits, vegetables, and nursery/greenhouse) is forecast to decrease 3.7 percent in 2016 (following an 11.6-percent gain in 2015). Wheat, cotton, and rice farm businesses are expected to see the largest increases in average net cash income in 2016 due to lower cash expenses—primarily fertilizer and fuel—more than offsetting declines in cash receipts.
Average NCFI for most farm businesses specializing in livestock production is forecast to fall in 2016, with dairy farms expected to experience the largest declines in absolute and percentage terms. After record high milk prices in 2014, this would be the second consecutive year of double-digit declines in NCFI for dairy farms. For farm businesses specializing in hogs, lower receipts are expected to drive average NCFI 7.5 percent lower in 2016 (to $257,800), despite lower expenses for livestock purchases. For poultry and egg farm businesses, lower prices—particularly for eggs—are expected to reduce overall cash receipts and drive the average NCFI forecast down 17.6 percent to $105,000 in 2016. Cattle/calf farm businesses are also expected to have lower NCFI in 2016, with price declines expected to diminish cash receipts and more than offset reduced spending on livestock inventory purchases.
Average Net Cash Farm Income for Farm Businesses Lower Across Most Regions in 2016
Regional performance varies considerably due to the strong geographic concentration of certain production specialties. Of the nine resource regions (see ERS resource regions), six are expected to have lower NCFI in 2016, with only the Mississippi Portal, Prairie Gateway, and Heartland regions forecast to have higher NCFI.
- Farm businesses in the Basin and Range are forecast to experience a 15-percent decrease in average NCFI (the largest percentage decline across regions), as lower cash receipts for cattle impact the region. For farm businesses in the Prairie Gateway, higher expected government payments and lower expenses are offset by lower cattle/calf cash receipts, resulting in an increase in average NCFI of 2.5 percent.
- In the Northern Great Plains, falling NCFI for the region’s cattle and calf businesses contributes to an expected 2-percent decrease in average NCFI.
- Due to specialization in cotton and rice, the Mississippi Portal is expected to see an increase in average NCFI of 11.8 percent in 2016.
- Heartland farm businesses—with expected lower cattle and poultry/egg prices more than offset by reduced fertilizer/livestock purchase expenses and gains in crop receipts—are forecast to have an average NCFI of $125,600 in 2016, up about 4 percent from 2015.
- Farm businesses in the Eastern Uplands are expected to benefit from lower fertilizer and livestock purchase expenses, but not enough to offset expected declines in cash receipts, leading average NCFI 9.8 percent lower in 2016. For the Southern Seaboard, average NCFI in 2016 is expected to be within $1,000 (down 1.5 percent) of the 2015 value of $65,600
- Dairy’s forecast performance for 2016 is expected to affect many regions, with a forecast 9.5-percent decrease in average NCFI for the Northern Crescent and a 6.9-percent decline for the Fruitful Rim. Fruitful Rim NCFI was also reduced by the forecast for farm businesses growing specialty crops.
*Farm businesses are defined as operations with gross cash farm income of over $350,000 (labeled "commercial") or smaller operations where farming is reported as the operator's primary occupation (labeled "intermediate"). Approximately 10 percent of U.S. farms are commercial and 31 percent are intermediate. "Residence farms" comprise the remaining 59 percent of operations. These are small farms operated by those whose primary occupation is something other than farming.
**Commodity specialization is determined by a farm business having at least 50 percent of the value of production from a particular commodity. Farm businesses often produce multiple commodities, so average net cash income statistics should not be interpreted as related solely to the commodity highlighted as the commodity specialization.