Wednesday, February 12, 2014

USDA: Net Farm Income Forecast to Fall in 2014

The USDA forecast that net farm income will drop 26.6% to $95.8 billion in 2014 from 2013’s forecast of $130.5 billion. Although this is the lowest net farm income since 2010, it remains $8 billion above the 10-year average. The expected fall in net farm income is largely caused by an across-the-board expected decrease in prices of all the major crop categories.

Farm debt is expected to increase, though at a slower rate than previous years. Farm real estate debt is expected to increase 3.2% to $186.7 billion, slightly lower than the 3.9% average over the past 5 years. The slightly slower growth is attributed to the expected slowdown in farmland price increases, as well as an expected increase in interest rates, reduced government payments and lower net cash income. Non-real estate debt is forecasted to grow more slowly than real estate debt, rising 1% to $129.5 billion. Here, the slowed growth demonstrates the interaction between falling incomes and input price levels. While lower income prompts the need for farmers to finance their debt, conversely, lower cost of production inputs decreases operating expenses, reducing the need for debt financing.

Crop receipts are expected to decrease by more than 12% in 2014. U.S. corn production is expected to increase as farmers continue to recuperate from the 2012 drought. This will drive both the sales receipts and value of inventory change in 2014 to decline significantly. Furthermore, wheat and cotton producers will see increased competition from production abroad, driving expected annual prices in 2014 to decline. The average prices for corn, wheat, soybean, cotton, vegetables and melons are expected to decline in 2014.

However, livestock receipts are expected to increase by 0.7%, mainly driven by higher milk prices. Increased dairy receipts are expected to more than offset forecast declines in hog and egg receipts. Receipts for cattle and receipts for calves are expected to remain stable in 2014.

Production expenses are expected to decrease by $3.9 billion, declining for the first time since 2009 and interrupting a 12-year upward trend in expenses. However, production expenses remain well above the nominal 2012 level, and are expected to be the second highest on record nominally and the third highest in inflation-adjusted dollars. The decrease is due to a decline in input prices. Despite the decrease, total production expenses are expected to constitute 78% of gross farm income in 2014, up from 73% in 2013, indicating a return to much tighter margins.

Government payments paid to producers are expected to decline 45.4% from 2013, totaling $6.12 billion.

Read the USDA report.

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