LegiStorm

Summary:

According to USDA’s Economic Research Service (ERS), national net farm income—a key indicator of U.S. farm well-being—is forecast at $66.9 billion in 2016, down 17% from last year. The 2016 forecast represents the third consecutive year of decline and would be the lowest since 2009 in both nominal and inflation-adjusted dollars. Net farm income is calculated on an accrual basis. Net cash income (calculated on a cash-flow basis) is also projected lower in 2016, down 15% to $90.1 billion. The forecast for lower net farm income and net cash income is primarily the result of the outlook for lower livestock receipts—down over $23 billion (-12%). Record yields helped to offset lower crop prices, leaving total crop revenues unchanged in 2016. The resulting fall in total cash receipts reflects continued declines in prices for most commodities compared with the period of 2011-2013, when prices for many major commodities experienced record or near-record highs. Partially offsetting the decline in farm revenues is a mild decline of about 3% in farm cash expenses. In addition, government payments are projected up by 19% in 2016 to $12.9 billion. The 2014 farm bill (Agricultural Act of 2014; P.L. 113-79) eliminated direct payments of nearly $5 billion per year and replaced them with a new suite of revenue support programs. In particular, the Price Loss Coverage (PLC) and Agricultural Risk Coverage (ARC) programs are expected to trigger payments of nearly $8 billion in 2016 following a $5 billion payout in 2015. U.S. farm income experienced a golden period during 2011 through 2014, driven largely by strong commodity prices and agricultural exports. Agricultural exports are forecast lower in 2016, down 7% from 2015’s total and well below 2014’s record $152.3 billion—due largely to a strong U.S. dollar coupled with a continued weak economic outlook in several major foreign importing countries. However, despite the year-over-year decline, U.S. agricultural exports are still projected to account for over 30% of farm sector gross earnings in 2016. In addition to the outlook for lower farm income in 2016, farm wealth is projected to decline for a second consecutive year (down about 2% from 2015) to $2,849 billion. Farm asset values reflect farm investors’ and lenders’ expectations about long-term profitability of farm sector investments. The outlook for lower commodity prices and the expected decline from the past four years’strong outlook for the general farm economy have reversed the growth of farmland values. Because they comprise such a significant portion of the U.S. farm sector’s asset base, change in farmland values is a critical barometer of the farm sector’s financial performance. At the farm-household level, average farm household incomes have been well ahead of average U.S. household incomes since the late 1990s. In 2015 (the last year for which comparable data were available), the average farm household income (including off-farm income sources) of $119,880 was about 51% higher than the average U.S. household income of $79,263. The outlook for a third year of lower net farm income, coupled with a second year of lower farm wealth, suggests a weakening financial picture for the agricultural sector as a whole heading into 2017, with substantial regional variation. Relatively weak prices for most major program crops signal tougher times ahead. Low prices are expected to trigger substantial payments under the new safety net programs of the 2014 farm bill; however, eventual 2017 agricultural economic well-being will hinge on crop prospects and prices, as well as both domestic and international macroeconomic factors, including economic growth and consumer demand. This report is updated to include USDA’s November 30, 2016, farm income update and the November 25, 2016, U.S. agricultural trade outlook update.