2018 Farm Sector Income Forecast
Net farm income, a broad measure of profits, is forecast to decrease $4.3 billion (6.7 percent) to $59.5 billion in 2018, which would be the lowest level in nominal terms since 2006. Net cash farm income is forecast to decrease $5.0 billion (5.1 percent) to $91.9 billion, the lowest level since 2009. In inflation-adjusted (real) 2018 dollars, net farm income is forecast to decline $5.4 billion (8.3 percent) from 2017; if realized, this would be the lowest real-dollar level since 2002. Real net cash farm income is forecast to decline $6.7 billion (6.8 percent) in 2018, and this would be the lowest real-dollar level since 2009. Net cash farm income includes 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 noncash items, including changes in inventories, economic depreciation, and gross imputed rental income.
[In the text below, year-to-year changes in the major aggregate components of farm income are discussed only in nominal dollars unless the direction of the change is reversed when looking at the component in inflation-adjusted dollars.]
- Overall, farm cash receipts are forecast to decline $2 billion (0.5 percent) in 2018 to $363.1 billion in nominal terms. Both total crop and animal/animal product receipts are forecast to decline by less than 1 percent as declines in receipts from some commodities are largely offset by increases for other commodities.
- Milk cash receipts are forecast down $2.5 billion (6.7 percent) due to expected lower prices, while cattle/calf receipts are forecast up $2.2 billion (3.3 percent) as higher quantities sold are expected to more than offset a decline in prices.
- Corn cash receipts are forecast down $1.9 billion (4.0 percent) primarily due to lower expected prices while soybean receipts are forecast up $1.7 billion (4.5 percent) following expected increases in quantities sold.
- Vegetable/melon cash receipts are forecast down $1.5 billion (7.0 percent), largely due to lower expected prices.
- Direct government farm payments—which include Federal Government farm program payments paid directly to farmers and ranchers but exclude insurance indemnity payments made by FCIC, as well as USDA loans—are forecast to decline $2.1 billion (18.6 percent) to $9.3 billion in 2018, reflecting large expected declines in Agricultural Risk Coverage and Price Loss Coverage payments.
- Federal Crop Insurance Corporation indemnities—payments made by private insurance companies to farm operators for their insured commodity losses—are forecast to rise by $3.8 billion (72.6 percent), to $8.9 billion, in 2018. Premiums paid by farm operators are expected to decline by $92 million (2.4 percent).
- Total production expenses are forecast to increase $3.5 billion (1.0 percent) in 2018 to $359.2 billion. In inflation-adjusted terms, total production expenses are forecast to remain relatively flat (fall 0.8 percent). In nominal terms, expenses for fuels/oils are forecast up $1.4 billion (10.2 percent) and interest expenses are forecast up $1.0 billion (13.8 percent). Hired labor expenses are forecast to increase $787 million (2.5 percent). In contrast, expenses for feed are forecast to fall $715 million (1.3 percent).
- Farm sector equity is expected to increase by 1.6 percent to $2.7 trillion. Farm sector assets are forecast to increase 1.6 percent in 2018 to $3.1 trillion, largely due to a 2.1-percent increase in farm real estate assets. Farm sector debt is forecast to rise 1.0 percent to $388.9 billion, with real estate debt forecast to rise 1.2 percent to $239.0 billion. When adjusted for inflation, farm sector equity, assets and debt are forecast to remain relatively flat (each are forecast to fall less than 1 percent).Debt-to-asset levels for the sector are forecast to fall slightly from 2017.
Value of Agricultural Sector Production Relatively Unchanged in 2018
The value of agricultural sector production is composed primarily of crop and livestock cash receipts, adjusted for any changes in the value of inventories and home consumption plus farm-related income. The value of U.S. agricultural sector production is expected to be relatively unchanged from 2017, rising just $1.3 billion (0.3 percent) in 2018 to $409.4 billion in nominal dollars. A $1.4-billion (0.8 percent) decrease in the value of animals/animal products and a $0.5-billion decrease (0.3 percent) in the value of crop production is expected to partially offset a $3.2-billion (6.7 percent) increase in farm-related income (see detail on value of production in the table on value added). However, after adjusting for inflation, U.S. agricultural sector production in real dollars is expected to decline $5.8 billion (1.4 percent).
The forecast decline in the nominal value of crop production from $183.2 billion in 2017 to $182.7 billion in 2018 reflects an expected $1.5-billion drop in cash receipts from the sale of crops, a $1-billion increase in adjusted value of change in crop inventories, and a $500,000 drop in the value of crops consumed on the farm (home consumption).
The forecast decrease in the value of animal/animal product production from $177.4 billion in 2017 to $176.1 billion in 2018 reflects an expected $0.5-billion decrease in cash receipts and a $0.9-billion decrease in the value of inventory adjustment.
Farm-related income is expected to rise by $3.2 billion (6.7 percent) to $50.6 billion in 2018, with nearly all categories forecast to increase. Federal Crop Insurance Corporation (FCIC) indemnities are forecast up almost $3.8 billion (72.6 percent) to $8.9 billion in 2018. The large increase reflects an expected return to typical weather conditions in 2018, with larger expected covered losses, in contrast to the exceptional growing conditions of the previous 2 years. Net cash rent received by operator landlords is the only farm-related income category not expected to increase, declining slightly (1.1 percent).
Total Crop Receipts Expected To Decline in 2018
Crop cash receipts are forecast to be $188.2 billion in 2018, a decrease of $1.5 billion (0.8 percent) from 2017. Corn receipts are expected to decline $1.9 billion (4.0 percent) in 2018, reflecting forecast declines primarily in prices but also quantities sold. Wheat receipts are expected to decline $0.3 billion (3.5 percent) from 2017 as a predicted decline in quantity sold more than offsets an expected increase in the price of wheat. Higher soybean receipts ($1.7 billion or 4.5 percent) are predicted in 2018 as higher expected quantities sold more than offset an anticipated decline in price. Rice receipts are forecast to increase $0.2 billion (9.6 percent) in 2018. The expected decrease ($0.5 billion or 5.9 percent) in 2018 cotton receipts reflects declines in upland cotton lint receipts. Vegetable and melon cash receipts are expected to fall $1.5 billion (7.0 percent) in 2018 despite expected increases in dry bean and potato receipts. Cash receipts for fruits and nuts are expected to decline almost $0.6 billion (2.3 percent) in 2018.
Animal/Animal Product Receipts Forecast To Fall Slightly in 2018
Total animal/animal product cash receipts are expected to fall $0.5 billion (0.3 percent) to $174.9 billion in 2018. Declining receipts for milk, turkeys, and broilers are projected to more than offset higher receipts from other animals and animal products.
Milk receipts are expected to decrease $2.5 billion (6.7 percent) in 2018, reflecting an expected price decline. Cash receipts from cattle and calves are expected to increase $2.2 billion (3.3 percent) as forecast price declines are more than offset by an increase in quantity sold. Hog cash receipts are expected to decline slightly (0.4 percent).
Broiler receipts are expected to fall $0.4 billion (1.4 percent) in 2018. Chicken egg receipts are expected to rise $0.4 billion (5.3 percent). Turkey receipts are expected to decline $0.2 billion (4.9 percent) in 2018.
Expected Lower Prices Account for Forecast Decline in Cash Receipts
To better understand the factors underlying the movement in annual receipts, we decompose them into two separate effects: a "price effect" with quantity change held constant (unchanged from last year’s level), and a "quantity effect" where prices are considered unchanged from last year’s level. Although our forecast allows us to separate price from commodity effects, we cannot do this for a small share of commodities.
Price changes (the price effect alone) for crops and animals/animal products are expected to account for a $10.6-billion decrease in commodity cash receipts—including a $6.5-billion decrease in animal/animal product receipts and a $4.1-billion decline in crop receipts. The quantity effect by itself is expected to increase cash receipts by $8.1 billion in 2018: $5.8 billion from additional quantities sold of animal/animal products and $2.3 billion from additional quantities of crops sold. These two effects, plus a $0.5-billion increase in receipts for commodities whose price and quantities effects cannot be separately estimated, collectively contribute to a $2.0-billion overall decline in cash receipts relative to 2017.
Direct Government Farm Payments Forecast To Decline in 2018
Direct government farm program payments are those made "directly" by the Federal Government to farmers and ranchers without any intermediaries. They include payments from the programs created in the 2014 Farm Bill, as well as a few other programs, but do not include FCIC insurance indemnity payments or USDA loans. Direct government farm program payments are forecast to decline 18.6 percent ($2.1 billion) from 2017 to 2018 in nominal terms (see table on government payments). After adjusting for inflation, the decline in real dollars is 20.0 percent ($2.3 billion). The lion’s share of this projected decline is due to declining payments in 2018 for the Price Loss Coverage (PLC) and Agricultural Risk Coverage (ARC) programs. ARC and PLC program payments, which accounted for almost 61 percent of total direct government payments in 2017, are expected to account for 54 percent in 2018.
Crop Price-Based Programs
PLC is a price-based program where direct government farm payments are issued for eligible crops and acres if the effective price for a commodity is less than the reference price for that commodity. The $737-million (23 percent) decrease in PLC payments in 2018 mostly reflects expected increases in 2017 market-year prices for commodities—including wheat and long-grain rice—where payments are expected, reducing their 2018 calendar-year PLC payments.
ARC is a revenue-based program calculated using 5-year Olympic averages of U.S. prices and county yields. ARC payments in 2018 are expected to decline over $1.1 billion (31 percent) from 2017. The decrease in ARC payments from calendar year 2017 (2016 crop year ARC payments) to calendar-year 2018 (2017 crop-year ARC payments) is largely because the 2017 county revenue guarantees are generally lower than for 2016. Prices have declined for the crops enrolled in ARC (i.e., corn), but yields have increased, so actual revenues have not fallen as much as prices. In addition, prices were much higher in 2012-15, so with each subsequent crop year the influence of the 2012-15 period diminishes and the revenue guarantee for most counties declines as well.
Marketing Loan Benefits—composed of Marketing Loan Gains and Loan Deficiency Payments—are forecast to decrease almost 91 percent in 2018, reflecting expected higher commodity prices for wheat and upland cotton.
Conservation Payments and All Other Farm Program Payments
Conservation payments—reflecting the financial assistance programs of USDA’s Farm Service Agency and Natural Resources Conservation Service—are expected to be $3.7 billion in 2018, near 2017 levels.
The Dairy Margin Protection Program (MPP) is forecast to return $3 million to the Federal Government in 2018, after payments from the program are adjusted by the fees and premiums paid by dairy participants.
Supplemental and ad hoc disaster assistance payments are forecast to fall almost 28 percent in 2018. This mostly reflects expected declines in the Livestock Indemnity and Livestock Forage Disaster Programs despite additional Livestock Indemnity Program and other disaster program payments in 2018 due to the 2017 hurricanes. The forecast does not include any additional ad hoc payments due to the 2017 hurricanes.
Production Expenses Forecast To Remain Relatively Flat in 2018
After reaching record highs exceeding $390 billion in 2014 and then declining by almost $32 billion in 2015 (8 percent), farm sector production expenses (including operator dwellings) have stabilized at an average $355.1 billion from 2016 to 2018. Production expenses are forecast at $359.2 billion (nominal) in 2018, up 1.0 percent ($3.5 billion). When adjusted for inflation, total production expenses are forecast to fall 0.8 percent. While the 2018 farm sector expense forecast is little changed from the 2017 forecast, this masks fluctuations in individual expense items. In nominal dollars, forecast declines in expenses for inputs typically produced on farms—including feed, livestock/poultry, and seed—are more than offset by forecast increases in fuel and oils, interest, and labor expenses.
See data tables on production expenses.
Spending on fuels and oils, which accounts for almost 5 percent of cash expenses, is expected to increase 10.2 percent ($1.4 billion) on top of a 13.9-percent ($1.7 billion) increase forecast for 2017. The 2018 forecast is driven in part by the U.S. Energy Information Agency's forecast of higher diesel prices (by more than 30 cents per gallon, on average) in 2018.
- Interest expenses (including operator dwellings) are expected to increase by 6.9 percent ($1.3 billion) in 2018, driven by higher forecast debt levels and rising interest rates on new and variable-interest-rate debt.
- Hired labor costs are forecast to increase in 2018 by 2.7 percent ($786.7 million), continuing a trend that began in 2015. Wage rate increases are expected to put upward pressure on hired labor costs.
- Feed expenses are forecast to decrease 1.3 percent ($714.7 million) in 2018, after declining 3.0 percent ($1.7 billion) in 2017, as feed prices are expected to continue to decline.