Minding Ag's Business

Farm Income in the Dumps

By Marcia Zarley Taylor , DTN Executive Editor

For the fourth year in a row, USDA expects crop incomes to decline in 2016, based on forecasts released today. The main good news for grain producers is that the steepest income declines since the Peak Corn-era are leveling off and savings in crop production costs are beginning to help heal farm losses.

Overall net farm income (including crops and livestock) is forecast at $56.4 billion in 2015 (down 38% from year earlier levels) and $54.8 billion in 2016 (down another 3.0%), potentially the lowest level of net farm income since 2002.

"Cash receipts for corn and soybeans are both expected to be fairly flat in 2016," USDA said. Since hitting a record high in 2012, corn receipts are forecast to fall 36% through 2016, primarily due to lower prices. In contrast, increases in soybean production are expected to outweigh small price declines, leading soybean cash receipts to increase 1.5% in 2016.

USDA expects a surge in the new Farm Bill's Agricultural Risk Coverage (ARC) and Price Loss Coverage (PLC) payments to offset much of the revenue hit for crop producers. By its calculations ARC payments for eligible producers should jump by about 70% when paid in late 2016, to $7.2 billion. Corn base acres are expected to receive about two-thirds of ARC payments in 2016, with soybeans and wheat combined receiving the balance. PLC, which will primarily benefit rice, peanuts and wheat, should grow to about $1.9 billion in 2016, or more than 100% from year earlier payouts, USDA said.

Livestock producers--particularly dairy and pork producers--may face the biggest income shocks in the year ahead, USDA warned. Livestock cash receipts increased by 44% in inflation-adjusted terms from 2005 to 2014, but are estimated to have declined by 12.5% in 2015 and are expected to fall an additional 4% in 2016. In 2016, prices are expected to fall for all major animal and animal product commodities.

One bright spot in the report was that some production costs appear to be turning a corner. While still trailing the steep adjustments in commodity prices, USDA is expecting a modest 14.5% savings in fuels and fertilizers this year, as well as feed savings.

Nathan Kauffman, assistant vice president of the Federal Reserve Bank of Kansas City, admits there weren't many surprises in the USDA outlook. "The commodity price shift from 2014 to 2015 was a big adjustment, and the forecast for 2016 just confirms where things have been," he told DTN. Absent a global weather event, agriculture "lacks a convincing story to get farm income back to where it had been….reality is starting to sink in," he said.

How will this affect financing for farm operations in 2016? "There's a constant churn in any industry," Kauffman observed, especially when financial stress is prolonged. While a number of farm operators remain well positioned for the long-term, some high-growth farmers will find financing difficult this spring. "It won't be surprising some will need to find other options" should ag's low-profit climate continue, he said.

For USDA's full report, go to http://goo.gl/…

Follow Marcia Taylor on Twitter@MarciaZTaylor

Comments

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Aaron Cross 2/16/2016 | 4:14 PM CST
Marcia~ Your article forgot to mention PLC grain sorghum payments should be more for 2016, and should beat the ARC-CO which has a stop gap.
Unknown 2/10/2016 | 8:39 PM CST
It sucks. My neighbor just out bid me on marginal ground.
tom vogel 2/9/2016 | 9:00 PM CST
Good information, Marcia. One thing to keep in mind is these lower farm incomes are taking their toll on rural America. In my area of Ohio the equipment dealers are really suffering. This flows through the entire agricultural supply chain and distribution channel.