2016 Farm Sector Income Forecast
Farm Sector Weakness Forecast To Continue Into 2016
Net cash farm income for 2016 is forecast at $94.1 billion, and net farm income at $71.5 billion. Both measures are forecast to decline for the third consecutive year after reaching recent highs in 2013 for net farm income and 2012 for net cash income. Net cash farm income is expected to fall by 13.3 percent in 2016, while net farm income is forecast to decline by 11.5 percent. These declines follow the 17.5- and 12.9-percent reductions in net cash income and net farm income, respectively, that occurred in 2015.
- Cash receipts are forecast to fall $25.7 billion (6.8 percent) to $353.4 billion in 2016, led by an $18.7-billion (9.8 percent) drop in animal/animal product receipts and a $7.1-billion (3.7 percent) decline in crop receipts. The expected drop in 2016 cash receipts is led by declines in nearly all major animal/product categories (including dairy, meat animals, and poultry/eggs), as well as vegetables and melons. Feed crop and food grain cash receipts are also expected to fall.
- While overall cash receipts are expected to decline, receipts for several commodities—including turkeys, rye, hay, cotton (cotton lint and cottonseed), miscellaneous oil crops, potatoes, and sugarcane/sugar beets—are forecast to rise by at least 1 percent in 2016.
- Direct government farm program payments are forecast to increase in 2016 by $2.7 billion, or 24.8 percent, to $13.5 billion.
- A 2.8-percent drop in overall production expenses is forecast for 2016, partly offsetting the decline in cash receipts. Notably, expenses for inputs that typically are produced by the farm sector itself—including feed and livestock/poultry purchases—are expected down (6.2 percent). Also, expenses for fuels and oils are forecast down by 13.2 percent in 2016. If realized, expenses across each of these three categories will have fallen for 3 straight years. Interest expenses are forecast to decline (2.4 percent) relative to 2015 due to falling real estate interest expenses. In contrast, cash labor expenses are forecast to increase due to an increase in hired labor costs.
- The value of total farm sector equity is forecast down by $61.2 billion (2.4 percent) in 2016, as the decline in farm sector assets outpaced the modest decline in sector debt relative to 2015. The value of real estate, the largest component by far of the asset portfolio, is forecast down by $36.9 billion (1.5 percent). The (inventory) value of crops, animals/animal products, and purchased inputs is forecast down by $15.3 billion (8.2 percent) and the value of machinery/vehicles is expected down $7.9 billion (3.3 percent) from 2015.
- The balance sheet forecast indicates a fourth consecutive year in which farm solvency measures have deteriorated. Liquidity positions have likewise deteriorated, but the changes in both measures have been slight generally and these indicators of financial health remain near historic lows.
Value of Agricultural Sector Production Expected To Fall in 2016
The annual value of U.S. agricultural sector production is expected to fall 5.1 percent to $406.7 billion in 2016, almost entirely due to declines in the value of animals/animal product production (see table on value of production). The value of agricultural sector production is composed primarily of crop and livestock cash receipts adjusted for any changes in inventories and home consumption, plus farm-related income, including any commodity insurance indemnity payments. If realized, the value of crop production (forecast $181.4 billion in 2016) would represent a third consecutive decline from 2013’s record high of $233.7 billion, and a fourth straight year of declining crop cash receipts. The forecast reduction in crop value of production for 2016 reflects a 4-percent decline in crop cash receipts. The value of U.S. livestock production is forecast to decline 10.8 percent (to $173.5 billion) in 2016 as lower prices are expected to lead to a large decline in livestock cash receipts and a smaller decline in livestock value of inventory adjustment.
The value of agricultural sector production is inclusive of several types of farm-related income, including imputed rental income from farm dwellings, machine hire and custom work, forest products sold, and other farm income (net cash rent received, Federal crop and livestock insurance indemnities, etc.). Indemnities may be recorded when crop insurance is purchased by farmers and ranchers to protect against losses due to natural disaster or price declines. Wheat has been the largest recipient (almost 37 percent) of 2016 crop-year-to-date Federal Crop Insurance Corporation (FCIC) indemnities, followed (in descending order) by corn, cotton, and soybeans. FCIC indemnities paid in 2016 are expected to decrease by over $1 billion from 2015.
Crop Receipts Forecast To Decline Modestly in 2016
Crop cash receipts—the cash income from crop sales—are forecast to fall 3.7 percent ($7.1 billion) in 2016 as prices continue to decline for most field crops. The crop cash receipts forecast of $182.3 billion is $2.9 billion under the most recent 10-year average. Since hitting a record high in 2012, corn receipts are forecast to fall 37.7 percent over the 4 years through 2016, primarily due to lower prices. Expected further weakening of corn prices would more than offset benefits from production gains, leading 2016 corn cash receipts to fall by $2.9 billion (6 percent) from 2015. Similarly, wheat receipts have declined since peaking in 2012. Wheat is expected to decline $1.5 billion (15 percent) from 2015, as price declines accompany strong harvests. Increased soybean production is expected to be offset by falling prices, leading soybean cash receipts to decline 0.4 percent in 2016. A slight decline is expected for rice receipts. Cotton receipts are expected to increase in 2016, but are still more than 30 percent below their high in 2012.
Vegetable and melon cash receipts are expected to fall 7.5 percent ($1.5 billion) in 2016. Dry bean receipts are expected to decline 6.0 percent, while potato receipts are expected to rise 4.4 percent. Cash receipts for fruits and nuts are expected to decline 6.5 percent in 2016.
Animal/Animal Product Receipts Forecast Sharply Lower in 2016
Animal/animal product cash receipts are expected to fall $18.7 billion (9.8 percent) in 2016. Prices are expected to fall for all major animal and animal product commodities, especially eggs.
After reaching a record high of $49.4 billion in 2014, milk receipts are expected to drop $1.3 billion (3.6 percent) in 2016 as declining prices continue to outweigh an expected increase in milk production. Cash receipts from cattle and calves are also expected to decline in 2016, falling $8.6 billion (11 percent) as cattle/calf prices decline. Hog production is expected to continue rising in 2016 as the industry recovers from the porcine epidemic virus (PEDV) in 2014. Hog prices are expected to drop in 2016, leading to a 6.5 percentage point drop in 2016 hog cash receipts.
Poultry and egg cash receipts are expected to fall 15.7 percent in 2016, due primarily to a decline in egg receipts. HPAI, or "bird flu," resulted in 50.4 million birds being destroyed in 2015, with turkeys and egg laying chickens suffering the largest loss in numbers and driving egg prices to new—if fleeting—highs. Bird flu has been less of a factor in 2016, resulting in large price declines and greater production, with an overall decline in 2016 chicken-egg receipts. Turkey production and prices are expected to increase. Broiler prices are expected to decline in 2016 as production increases, leading to a modest decline in broiler cash receipts.
Falling Prices Underlie Forecast Drop in Farm Cash Receipts
Cash receipts across all commodities are expected to fall $25.7 billion in 2016. The decline reflects falling commodity prices, an effect only partially offset by an increase in production. For additional insight, the overall decline in cash receipts value is decomposed into separate price and quantity effects. The analysis is limited to those commodities for which price and quantity data estimates and forecasts are available: soybeans, tobacco, peanuts, sugar beets, hay, potato, sunflower, flax, cottonseed, dry beans, barley, rapeseed, rye, canola, oats, mustard seed, safflower, sugarcane, sorghum, long-staple cotton, rice, wheat, upland cotton, and corn, fruits and nuts, vegetables and melons, hogs, broilers, milk, farm chickens, turkeys, eggs, and cattle/calves.
For these commodities, we calculate a price effect by applying the 2016 forecast prices to 2015 production, suggesting that 2016 cash receipts would be $38.1 billion lower due solely to the 2016 change in price. The quantity effect is calculated for the same commodities. Holding prices constant at their 2015 levels, cash receipts would be $11.9 billion higher under 2016 production levels.
Direct Government Farm Payments Forecast To Rise in 2016
Direct government farm program payments are forecast to rise by 24.8 percent in 2016 to $13.5 billion (see table on government payments). The Price Loss Coverage (PLC) and Agriculture Risk Coverage (ARC) programs are expected to account for 64.1 percent of program payments. PLC payments in 2015 went to long-grain rice (51.5 percent), peanuts (41.4 percent), and canola (7.1 percent). In 2016, about 40 percent of PLC payments are expected to be issued to producers with peanut base acres, 30 percent to producers with wheat base acres, 10 percent to producers with corn base acres, and 10 percent to producers with grain sorghum base acres.
Operators with corn base acres received almost 84 percent of Agriculture Risk Coverage-County (ARC-CO) 2015 payments, reflecting both corn price declines and the large number of corn base acres on which payments are made. About 65 percent of ARC-CO 2016 payments are expected to go to producers with corn base acres, 15 percent to wheat base producers and another 15 percent to producers with soybean base acres. The forecast increases in 2016 payments reflect expected declines in seasonal average crop prices. Payments are targeted to begin after October 1, 2016, following adjustments for adjusted gross income, payment limits, and other factors.
Commodity certificates, available beginning with the 2015 crop, allow producers to exchange collateral pledged to CCC for an outstanding, nonrecourse Marketing Assistance Loan (MAL). Marketing Loan Benefits (MLBs)—Marketing Loan Gains (MLGs), Loan Deficiency Payments (LDPs), and the reintroduced Certificate Exchange Gains (CEG)—are forecast to increase due to expected lower prices for upland cotton and peanuts. Few payments are expected for participants in the Dairy Margin Protection Program (MPP). After netting fees and premiums paid, the program will return $6 million to the Federal Government.
Supplemental and Ad Hoc Disaster Assistance payments are forecast to decline substantially in 2016, due to large expected declines in Livestock Forage Program (LFP) payments and APHIS Bird Flu payments. Conservation payments, reflecting Farm Service Agency (FSA) and Natural Resource Conservation Service (NRCS) programs, are expected to be about the same.
Production Expenses Forecast Lower in 2016, Led by Reduced Livestock, Fertilizer, and Fuel Costs
After reaching record highs exceeding $390 billion in 2014, farm production expenses are forecast to dip for the second consecutive year in 2016. The expected $10.1-billion (2.8 percent) decline is the second largest year-over-year reduction in expenditures since 2009, bested only by the $31.6-billion (8.1 percent) decline from 2014 to 2015. Reduced input costs are expected to ease, but not eliminate, some of the pressure from lower cash receipts.
The forecast decline in production expenses is predominantly driven by less spending on livestock/poultry purchases, fertilizer, and fuel, which should more than offset the increased outlays for hired labor and property taxes/fees.
See data on production expenses.
- Livestock and poultry purchases are expected to have the largest decline of any expense in 2016, both in absolute terms ($6 billion) and in percentage terms (19.7 percent), due primarily to lower feeder cattle prices.
- A double-digit decline (13.2 percent) in spending on fuels and oils is expected for the second consecutive year, with the U.S. Energy Information Agency expecting diesel and gasoline prices down over 15 percent in 2016.
- Labor costs are forecast to increase in 2016 by 3.7 percent (still below 2014 highs), after dipping in 2015. Wage rate increases are putting upward pressure on hired labor costs.
- Interest expenses are expected to fall 2.4 percent in 2016, with expected declines in real estate interest offset by a modest increase in interest paid on nonreal estate debt.
- Net rent expense—the amount paid to rent land, adjusted for the landlord’s share of government payments and insurance indemnities and net of any expenses paid by the landlords—is forecast to decrease by 2.2 percent to $19.6 billion in 2016. 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 Slightly in 2016
In 2016, payments to stakeholders are forecast to increase by $0.5 billion (0.9 percent), while net value added is forecast to decline by 6.1 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. Net value added 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 operators to share-rent agreements. 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.
Production Expenses: August 2016 Versus February 2016 Forecast
2015 production expenses are revised downward by $21.5 billion, a 5.7-percent decrease relative to the previous estimate in February 2016. The forecast for 2016 production expenses are revised downward by $27.7 billion, a 7.4-percent decrease relative to the February forecast. The change for both years is due to additional information that has become available since February, including data from USDA’s 2015 Agricultural Resource Management Survey (ARMS). In particular, the survey reports much lower estimates of capital expenditures in 2015, which feeds into the sector’s estimated capital consumption (including depreciation of farm capital assets and the value of operator dwellings). Estimated capital consumption in 2015 is $40.9 billion (previously forecast to be $49.9 billion) and is forecast to be $40.1 billion in 2016.