2017 Farm Sector Income Forecast
The outlook for farm sector well-being is often viewed from the perspective of year-to-year profits. Relative to 2016 levels, farm sector profitability measures forecast for 2017 range from nearly flat to declining. Net cash farm income, one measure of profitability, is forecast at $93.5 billion ($82.2 billion after adjusting for inflation) for 2017, up 1.8 percent compared to the 2016 forecast. Net farm income, a broader measure of profitability because it includes noncash values such as inventory flows and economic depreciation, is forecast at $62.3 billion ($54.8 billion after adjusting for inflation) for 2017, down 8.7 percent compared to 2016. The calendar year 2016 net cash farm income and net farm income forecasts are $91.9 billion and $68.3 billion, down 12.2 percent and 15.6 percent from their respective 2015 levels. Both of the 2016 profitability measures are revised upward by 2 percent compared to the previous forecast release on November 30, 2016.
See all data tables on farm income indicators.
- Overall, cash receipts are forecast to remain largely unchanged, with a decline of almost $1 billion (0.3 percent) in 2017. Little change is expected from 2016 in both crop and animal/animal product receipts.
- Nonetheless, some large changes are expected in 2017 in particular commodities. Cattle/calf receipts are forecast down $4.5 billion (6.7 percent), and milk is forecast up $4.7 billion (13.7 percent).
- The largest expected changes for individual crops in 2017 is a $1.4-billion decline (16.6 percent) in wheat receipts and a $1.3-billion gain (21.5 percent) in cotton receipts.
- Direct government farm program payments are forecast to decline in 2017 by $0.5 billion, or 4 percent. Indemnity payments are expected to rise relative to 2016.
- Total production expenses are forecast to remain flat in 2017. While feed and livestock/poultry purchases are forecast lower for the fourth consecutive year, down $2.7 billion (2.6 percent) compared to 2016, increased spending is expected for fuels and oils, up by $1.5 billion (13.2 percent), as well as for interest expenses, forecast up $2.4 billion (14.9 percent).
- The value of farm sector assets is expected to decline $31.8 billion (1.1 percent), with declines forecast in all 4 major asset value categories. Real estate, the largest component in the asset portfolio, is forecast to change little, down by $7.2 billion (0.3 percent) from 2016.
- The balance sheet forecast indicates farm solvency is high overall, despite a fifth consecutive year in which farm solvency ratios have weakened. Liquidity ratios and working capital have likewise deteriorated and are at their weakest levels since 2002.
Value of Agricultural Sector Production Expected To Fall in 2017
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 agricultural sector production plus direct government payments less farm sector costs results in net farm income.) The annual value of U.S. agricultural sector production is expected to fall $5.3 billion (1.3) percent in 2017, as declines expected for the value of animals/animal products and especially crops more than offset a predicted increase in other farm-related income (see table on value of production). If realized, the forecast 2017 value of crop production ($176.8 billion) would represent a decline of $9.2 billion (4.9 percent) from 2016. The difference between the change in crop value of production and crop cash receipts (the latter is anticipated to change little) is that value of production includes an expected decline in crop inventories as well as changes in receipts. The value of production for U.S. livestock and poultry is forecast to decline $0.9 billion (0.5 percent) in 2017.
The value of agricultural sector production includes several types of farm-related income in addition to cash receipts from the sale of crops and livestock/poultry. These include imputed gross rental income from farm dwellings, income from machine hire and custom work, forest products sold, net cash rent received, and insurance indemnities. Corn is the largest recipient of 2016 crop-year-to-date Federal Crop Insurance Corporation (FCIC) indemnities, followed by wheat, soybeans, and cotton.
Total Crop Receipts Expected To Change Little in 2017
Crop cash receipts—the cash income from crop sales during the 2017 calendar year—are forecast to decline $1 billion (0.5 percent) in 2017 as prices continue to decline for most major field crops except soybeans and cotton. U.S. corn production reached a record high for crop year 2016. Expected weakening of corn prices more than offsets an expected increase in quantity sold, leading 2017 corn cash receipts to fall by almost $0.4 billion (0.8 percent) from 2016. Wheat receipts are expected to decline almost $1.5 billion (16.6 percent) from 2016 as price declines accompany an expected decline in wheat quantities sold. Soybean production in the United States was also at a record high in 2016. Higher soybean receipts ($0.4 billion or 1.1 percent) in 2017 reflect higher soybean prices despite a slight decline in quantities sold. Rice receipts are forecast to increase slightly in 2017 despite an expected decline in rice prices, reflecting a large forecast increase in the quantity of rice sold. The expected increase ($1.3 billion or 21.5 percent) in 2017 cotton receipts reflects expected higher prices and quantities sold.
Vegetable and melon cash receipts are expected to rise almost $1 billion (5 percent) in 2017. Dry bean receipts are expected to decline over 1 percent, reflecting an anticipated decline in their average price. Potato receipts are expected to rise $0.8 billion (21 percent), reflecting higher quantities sold at higher prices. Cash receipts for fruits and nuts are expected to decline 3.2 percent in 2017. Sugarcane receipts are expected to rise 14.5 percent in 2017 while receipts for sugar beets are expected to decline 7.3 percent.
Animal/Animal Product Receipts Forecast To Change Little in 2017
Overall, animal/animal product cash receipts are expected to remain stable in 2017, rising $53 million (0.03 percent) in 2017. Relative to 2016, annual price changes are mixed as to direction in 2017, with increases expected for milk and eggs, declines expected for red meats and turkeys, and stable prices for broilers and farm chickens.
Milk receipts are expected to increase $4.7 billion (13.7 percent) in 2017 from 2016, reflecting expected increases in both the price and quantity sold. Cash receipts from cattle and calves are expected to decline in 2017, falling $4.5 billion (6.7 percent) from 2016 as cattle/calf prices decline. Hog prices are expected to drop in 2017, leading to a forecast drop in hog cash receipts of 4.7 percent.
Poultry and egg cash receipts are expected to increase 1.4 percent in 2017, reflecting relatively stable market conditions for the poultry and egg farm sector. Broiler receipts are expected to rise slightly as prices decline slightly but quantities increase in 2017. Chicken egg receipts are expected to rise 12.5 percent ($0.8 billion) as both egg prices and quantities sold increase in 2017. Turkey receipts are expected to decline 4.7 percent ($0.3 billion) in 2017, reflecting lower prices.
Falling Prices for Most Crops Underlie Forecast Small Decline in Cash Receipts
Total farm cash receipts across all commodities are expected to change little, declining almost 0.3 percent ($1 billion) in 2017. 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), and a "quantity effect" with price change held constant. The difference between the total change in cash receipts and the change due to the price and quantity effects is due to changes in receipts for minor commodities (called "other changes"), for which price and/or quantity effects could not be separately identified.
Price changes (the price effect) from 2016 to 2017 are expected to account for a $6.3-billion decline in commodity cash receipts—$4.5 billion in livestock/poultry receipts and $1.8 billion decline in crop receipts. Increases in quantities of commodities sold (quantity effect) are anticipated to offset most of the price effect. The quantity effect is expected to increase cash receipts from 2016 to 2017 by $4.7 billion: $4.3 billion from additional quantities sold of animal/ animal products and almost $0.4 billion in additional receipts from crops sold.
Thus, the price effect dominates the quantity effect and reduces receipts in 2017 by $1.6 billion. This is expected to be offset by a $0.6-billion increase in receipts from sale of other crops and miscellaneous livestock.
Direct Government Farm Payments Forecast To Decline in 2017
Direct government farm program payments are those made "directly" by the U.S. Government to farmers and ranchers without any intermediary. 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 to farmers and ranchers. Direct government farm program payments are forecast to decline by 4 percent in 2017 to $12.5 billion (see table on government payments). USDA’s Price Loss Coverage (PLC) and Agricultural Risk Coverage (ARC) programs are collectively expected to account for over two-thirds of all direct government payments in 2017. While Price Loss Coverage (PLC) payments are expected to increase by $1.24 billion in 2017, declines of $0.56 billion are anticipated in ARC as well as the other major programs.
PLC is a price-based program whereas ARC is a revenue-based program. PLC program payments are issued when the effective price for a commodity is less than the reference price for that commodity. Base acres are a farm’s crop-specific acreage of wheat, feed grains, rice, oilseeds, pulse crops, or peanuts eligible to be used for FSA program purposes. Base acres do not necessarily align with current plantings. Upland cotton base acres on the farm are renamed "generic" base acres under the 2014 Farm Bill. Peanut base acres received the largest PLC payout in 2016 (27.4 percent of total PLC payments), with long-grain rice receiving 27.3 percent and wheat 26.2 percent. Higher PLC payments in 2017 reflect lower expected prices for wheat, barley, oats, long-grain rice, corn, and grain sorghum. Soybean base acres received no PLC payments in 2016 and are not expected to receive PLC payments in 2017. The peanut PLC payment rate is expected to decline slightly. Wheat and long-grain rice will receive even larger PLC payments in 2017 than 2016 as their payment rates increase. Peanut and canola PLC payments are expected to decline, reflecting projected declines in their payment rates.
ARC payments in 2017 are forecast lower, reflecting a stable or improved outlook for benchmark prices for feed grains (in particular corn) and soybeans, the crops with the most base acres enrolled in the ARC program. Soybeans base acres received about 18.6 percent of 2016 ARC-CO payments (Agricultural Risk Coverage – County). Corn base acres received 69.1 percent of ARC-CO payments in 2016 and are still expected to receive the majority of ARC-CO payments in 2017.
The Cotton Ginning Cost-Share Program is expected to payout $283,000 in 2017 to those producers with an ownership share in the 2015 cotton crop. Marketing Loan Benefits (MLBs)—composed of Marketing Loan Gains (MLGs), Loan Deficiency Payments (LDPs), and the reintroduced Certificate Exchange Gains (CEG)—are forecast to decrease due to expected higher prices for upland cotton in 2017.
The Dairy Margin Protection Program (MPP) is forecast to return $15 million to the Federal Government in 2017, after payments from the program are adjusted by the fees and premiums paid by dairy producer participants. This reflects the impact of higher milk prices expected in 2017. Supplemental and Ad Hoc Disaster Assistance payments are forecast to decline in 2017 due to large expected declines in the Livestock Indemnity and Livestock Forage Programs. Conservation payments—reflecting Farm Service Agency (FSA) and Natural Resource Conservation Service (NRCS) financial assistance programs—are expected to decline slightly in 2017.
Production Expenses Forecast Flat in 2017
After reaching record highs exceeding $390 billion in 2014, farm sector production expenses are forecast at $350 billion in 2017. If realized, farm sector expenses would stabilize following 2 consecutive years of declines in 2015 (down $32 billion) and 2016 (forecast down $8.9 billion). While the farm sector expense forecast is little changed from 2016, this masks fluctuations to individual expense items.
Continued forecast declines in expenses for inputs produced on farms—including feed and livestock/poultry purchases—is offset by forecast increases in fuel, labor and interest expenses.
See data tables on production expenses.
- Livestock and poultry purchases are expected to continue to decline for the third consecutive year in 2017, due primarily to lower feeder cattle prices.
- A double-digit increase (13.2 percent) in spending on fuels and oils, which accounts for less than 5 percent of cash expenses, would reverse the recent trend of declining spending, with the U.S. Energy Information Agency expecting diesel prices over 40 cents higher per gallon, on average, in 2017.
- A 5.4-percent decline in seed, pesticide, and fertilizer expenses is forecast based on lower expected planted acres,(though yields and total production are expected to increase) in 2017 for the top 14 planted crops.
- Labor costs are forecast to increase in 2017 by 5.5 percent, continuing the forecast increase in 2016. Wage rate increases are putting upward pressure on hired labor costs.
- Interest expenses are expected to increase by 15 percent in 2017, driven by higher forecast debt levels and rising interest rates.
- 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 increase by 2.7 percent to $20.2 billion in 2017. 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 in 2017
In 2017, payments to stakeholders are forecast to increase by $4.6 billion (7.0 percent), while net value added is forecast to decline by 1.0 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. It 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 share-rent agreements with operators. 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.