Home / News / Business news / Drilling into a downturn

Drilling into a downturn

DANIEL LOOKER 02/20/2014 @ 4:53pm Business Editor

USDA economists gave more details of the department's recent forecasts for lower farm income Thursday at the Agricultural Outlook Forum in Arlington, Virginia.

A drop in cash receipts is the main reason for a 26% decline in net farm income to $95.8 billion this year and a 21% drop in net cash income, said Kevin Patrick, an economist with the Economic Research Service. A $26 billion fall in cash receipts and $5 billion less in farm program payments is only partially offset by a $3.9 billion drop in production costs.

Yet, those income projections would still be relatively high, he added. Net farm income would be the seventh highest since 1970, when adjusted for inflation. Net cash income would be the ninth highest.

In the short run, USDA commodity programs aren't going to be a windfall as farms adjust to lower income. The 2014 Farm Bill ends direct payments for this year, while any payments from its new programs, either target price or revenue, won't be received until 2015.

"In real terms, government payments in 2014 are the lowest level since 1981," he said.

But when those programs kick in next year, they'll help put a floor on farm income.

"You could be looking at support rates approaching $90 an acre," said Purdue University economist Brent Gloy, who based that assumption on a 200-bushel corn yield farm in Indiana that enrolls in the Agriculture Risk Coverage program, which currently appears to offer a revenue guarantee tied to $5.30-per-bushel corn prices in the Olympic average of the last five years. Gloy said his calculation is just a back-of-the-napkin estimate and more accurate estimates will be made later by economists at USDA and elsewhere.

"We have an idea where the downside is, and I don't think we had that until we got this [farm] bill," he said.

Gloy said that agriculture faces some years with headwinds that likely will include lower commodity prices and margins.

"The growth from biofuels is likely over," he said.

"The emerging markets have been the other key part of the demand story," he said, and mentioned Turkey, where its central bank recently raised interest rates. It's among the so-called Fragile Five nations that attracted investment during the recession in the U.S. and Europe that appear to be faltering as those economies start to recover. The other four are Brazil, India, Indonesia, and South Africa.

The recent increase in global crop production isn't likely to go away, he said. And in the U.S., the technology that farmers have purchased to increase yields, such as tile and center pivots, won't disappear either.

Yet, for most farmers, Gloy sees the next few years as "a few hiccups on the way."

"Farmers will figure out how to get through this and prosper over a long period of time," he said.

CancelPost Comment
MORE FROM DANIEL LOOKER more +

Senate Committee Takes on Rail Delays By: 09/17/2014 @ 6:06pm The Senate Commerce Committee passed a bipartisan bill Wednesday that gives the Surface…

Find That FSA Letter Soon By: 09/11/2014 @ 1:23pm Remember that letter you got from your local Farm Service Agency office in late July or early…

Planning for Winter’s Farm Program Sign-up By: 09/10/2014 @ 6:13pm With cash prices already well below some triggers for payments under the 2014 Farm Bill, sign-up…

MEDIA CENTERmore +
This container should display a .swf file. If not, you may need to upgrade your Flash player.
Farm Science Review, Day Two