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U.S. Farm Income Noses Upward After Three Years of Declines
Commodity prices are still in a trough, but U.S. farm income is on the rise for the first time since 2013 because producers are sending more crops and livestock to market than initially expected, said the USDA. It forecast net cash farm income (a measure of liquidity) of $100.4 billion this year, far stronger than the February forecast of $93.5 billion, but only three fourths of the record set in 2013.
“Increased quantities … are the primary driver, accounting for nearly 90% of the total effect on cash receipts,” said USDA’s Farm Sector Income Forecast, issued three times a year. Farmers reaped their largest corn and soybean crops ever in 2016, so they have ample stockpiles to liquidate this year. Livestock producers also ramped up marketings this year, boosting their revenue. USDA economists raised their estimate of cash receipts from crops and livestock by $14.1 billion, or 4%, from February.
The cash infusion trickled through USDA’s farm sector balance sheet to become a $6.9 billion increase in estimated cash farm income. With it, cash income would be 13% larger this year than in 2016. The USDA also forecast a 3% increase in net cash farm income to $63.4 billion, or half of the 2013 record for net farm income, a measure of wealth that includes crops held in storage. Cash farm income tends to be less volatile than net farm income.
“There is increasingly deep concern about the economic outlook” for the farm sector, said president Roger Johnson of the National Farmers Union, with few signs of higher commodity prices in the near term. “A bumper crop is going to paper over that stress … This year, probably fewer people are in that category” of larger-than-expected production that could be sold in 2018.
The USDA forecast higher farm income one day after estimating farm exports were rebounding from a slump that began in 2014 to total $139.8 billion this fiscal year. That would be a tie with 2015 for third-highest ag exports ever.
Ag bankers are charging higher interest rates and setting longer repayment periods on farm loans in the face of rising, but still historically low, delinquency rates on farm loans, said the Federal Reserve’s Ag Finance Databook in July. “Persistent declines in farm income have likely slowed the volume of new, non-real estate loans as bankers and borrowers have sought to manage risk.” Since then, the Chicago and Kansas City regional Fed banks said there were signs that the agricultural sector was stabilizing.
Farm real estate debt is forecast for a record $242.4 billion this year, up by 7.5% from 2016, said USDA’s farm income forecast. The larger debt would be offset in part by a 5% rise in the value of real estate. The debt-to-asset ratio (an indicator of solvency and the financial health of the sector) was forecast for 12.7% this year, compared to 12.6%. It would be the highest ratio since 2011 when the commodity boom was in full spate. The debt-to-asset ratio exceeded 20% during the worst of the agricultural recession of the 1980s.
Production expenditures are estimated at $355 billion this year, up marginally from 2016, but well below the record $390 billion of 2014.