In spite of substantial U.S. corn and soybean crop production in 2014 and increased beef prices resulting from lower supplies, USDA's latest farm sector profitability estimates indicates net farm income will fall 20 percent or more over 2013 numbers, or about $97 billion for the year.
If those numbers hold true, the 2014 forecast would be the lowest since 2010. In spite of the dismal report, the estimate remains nearly $14.5 billion above the previous 10-year average.
The USDA Economic Research Service's (USDA-ERS) farm sector profitability estimates were updated Dec. 12 to reflect changes for the years 2008-2013 and to provide the latest research estimates for 2014. In the December update the most significant change was in profitability estimates for the 2013 farm year, revised upward to reflect a new estimated net farm income of $129 billion, an increase of about 2 percent.
Also affected were the value of year-end inventories and related measures in the balance sheet, as well as production expenses, total value of production, gross and net value added, the value of inventory change, and their respective crop components in the income statement. Net farm income forecast for 2014 increased 0.4 percent, to $97.3 billion.
Production expenses forecast for 2014 would be the highest on record both nominally and in inflation-adjusted dollars. However, the increases in 2013 and 2014 are expected to be significantly less than the increases in 2011 and 2012. The principal reason for the 2014 increase is higher input prices, as reflected by the Production Items, Interest, Taxes, and Wage Rates (PITW) index, which is forecast to rise 4.8 percent during the year. If realized, total production expenses would constitute 76 percent of gross farm income in 2014, the highest since 2010, indicating a return to tighter margins.
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The largest increase among expenses is a $7.3-billion (28.0 percent) jump in livestock and poultry purchases. Miscellaneous expenses, which include items like animal health/breeding expenses, contract production fees, irrigation water, and general production/management expenses, are slated to rise $4.6 billion (13.8 percent). Other components that contribute significantly to the increase in expenses are total labor expenses ($2.1 billion); net rent to non-operator landlords ($1.9 billion); marketing, storage, and transportation ($1.7 billion); real estate interest ($1.3 billion); and fertilizer ($1.0 billion). Feed expenses are expected to fall $2.9 billion in 2014.
Higher input costs
While crop production in 2014 increased in many cases and livestock receipts were higher, greater input costs and expenses were designated as the primary reasons for changes in the 2014 net farm income estimate. Net cash income is forecast at $108.2 billion, down more than 19 percent from the 2013 estimate. Net cash income is projected to decline less than net farm income primarily because it reflects the sale of carryover stocks from 2013.
Meanwhile, 2014 crop receipts are expected to decrease to just over $27 billion, led by a projected $10.5-billion decline in corn receipts and a $7.9-billion decline in soybean receipts. Livestock receipts are forecast to increase by $25.7 billion (14 percent) in 2014, largely due to anticipated record prices for beef cattle and milk.
The elimination of direct payments under the Agricultural Act of 2014 results in only a projected 4 percent decline in government payments because of supplemental and ad hoc disaster assistance payments related to drought. Total production expenses are forecast to increase $19.8 billion in 2014 extending the upward movement in expenses that has occurred over the past 5 years.
In addition, USDA-ERS estimates the rate of growth in farm assets is forecast to diminish in 2014 (2.4 percent) compared to recent years. The slowdown in growth is a result of lower net income leading to less capital investment, and moderation in the growth of farmland values. Farm sector debt is expected to increase 3.1 percent, rising more than assets for the first time since 2009.
On a positive note, most of the anticipated increase in debt is for non-real estate loans with lower income spurring demand for operating funds. Despite the anticipated higher debt, USDA estimates the historically low levels of debt relative to assets and equity reaffirm the sector’s strong financial position.
Strong gains in U.S. livestock value of production reflect higher prices and cash receipts, easily offsetting a negative value of inventory change. Increases in value are forecast across almost all livestock categories. The largest gains are in cattle/calves and milk. Milk gains reflect a large forecast increase in price in 2014 as well as increased milk marketing. Price increases are also forecast for turkeys, chicken eggs, and broilers. Exports are expected to be up for beef and veal, pork, and turkey; stable for milk; and down for broilers.
Slight decline for median farm household income in 2014
Median total farm household income is forecast to decrease slightly in 2014, to $70,564, down from $71,697 in 2013. Given the broad USDA definition of a farm, many farms are not profitable even in the best farm income years. The median farm income forecast for 2014, at -$1,682, is down slightly from the 2013 estimate of -$1,141. Most farm households earn all of their income from off-farm sources—median off-farm income is projected to increase 3.7 percent in 2014 to $64,825. (Note: Because they are based on unique distributions, median total income will generally not equal the sum of median off-farm and median farm income.) See more financial statistics for farm operator households.