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Farm Income Is Stabilizing

The big plunge is over for farm income, which may slip by 2% or 3% this year. That is mild compared with the cumulative 56% drop in 2014 and 2015. USDA forecasts net farm income (a measure of wealth) at $54.8 billion this year. It would be the lowest income figure since 2002.

Market prices for most field crops as well as prices for cattle, hogs, poultry, dairy, and eggs are forecast to continue to fall. Crop subsidy payments – ARC, PLC, and LDPs – are estimated at $9.5 billion (an increase of more than $4 billion from last year) and would buffer a 4% drop in livestock receipts and a 1% decline in crop receipts.

“Cash receipts for corn and soybeans – historically the crops generating the highest cash crop receipts – are both expected to be fairly flat in 2016,” says USDA in its Farm Sector Income forecast. 

A 1% decrease in production expenses would provide some relief.

Operators of commercial and intermediate-size farms who specialize in program crops are likely to see an upturn in net cash farm income (a USDA gauge of solvency), while livestock producers are likely to see a decline. Given its mix of crop and livestock farms, the central Corn Belt would see flat income. Operators in the Plains would see a mild gain, but lower dairy prices would pull down income in the upper Midwest.

With commodity prices and income down for the third year in a row, farm real estate values are expected to decline modestly, around 1%, says USDA, while farm debt increases by 2%. It would be the second year of increasing debt, led by a nearly 4% increase in borrowing to cover expenses.

The farm sector’s debt-to-asset ratio would rise to 13.2% this year, the highest ratio since 13.6% in 2009. The ratio has been on the rise since 2012 but remains low by historical standards, says USDA. “As such, the sector appears to remain well insulated from the solvency risk associated with declining commodity prices, adverse weather, changing macroeconomic conditions, and the fluctuations in farm asset values.”

Although farm banks say loan performance remained strong into the start of this year, “persistently high demand for farm loans coupled with further declines in farm income remains a concern heading into the 2016 production season,” says the Kansas City Federal Reserve Bank in a quarterly report on agricultural finances.

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