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Farm Income Below $70 Billion — A New Average for U.S. Agriculture?
The USDA forecast net farm income, a broad measure of profits, of $69.4 billion this year. If accurate, the total would be the third year of net income below $70 billion since 2015. “We’re starting to see … a new average coming out here,” said USDA economist Carrie Litkowski during a webinar on Wednesday.
Farm income in 2019 will be far below the halcyon levels of early this decade, when a seven-year commodity boom propelled income to a record $123.4 billion in 2013 before collapsing due to abundant harvests worldwide. “In 2019, global production will continue to expand, trade challenges will persist, and these factors will continue to impact commodity prices,” said Agriculture Secretary Sonny Perdue in House testimony last week. “As a result, many farmers will continue to face tight bottom lines with fewer resources.”
Groups such as the National Farmers Union are calling for a stronger farm safety net because of sharply lower commodity prices. Yet, some analysts say that while income may be in a rut, the sector is sound financially.
In this, its first forecast of 2019 farm income, the USDA said that higher market prices would mean larger crop and livestock receipts for producers than last year. Livestock production also is expected to rise, helping to generate revenue. Production expenses will rise fractionally, and government payments, which hit a 12-year high of $13.8 billion in 2018, are projected to fall by $2.3 billion. Termination of the so-called Trump tariff payments would account for most of the decline in government payments.
Although farm debt is rising, so are farm assets. The debt-to-asset ratio, an indicator of stress, is forecast by the USDA to be 13.9% this year. This would continue a rise that began in 2012, although the ratio is still comparatively low. During the farm recession of the 1980s, the debt-to-asset ratio peaked at 22.9% in 1985. Land is often a farmer’s largest asset, and overall it accounts for more than 80% of assets for the sector. Federal Reserve banks in the Farm Belt say land values were stable going into this year.
When asked about the near-term outlook for farm income, Litkowski said, “We’re starting to see, you know, kind of a new average coming out here, especially if you take out the unusually high years around 2013 and 2014. Then the value we’re forecasting really isn’t that far off what we’ve seen in previous years.” Income was pegged at $61.5 billion in 2016, $75.2 billion in 2017, and $63.1 billion in 2018.
“What it means for the future, once we get away from discussing what happened in the peak years of farm income,” said Litkowski, is that “our focus is going to be … looking at income more relative to the years after the large uptick in farm income.”
Along with its estimate of 2019 farm income, the USDA revised 2018 net farm income to $63.1 billion, down from the previous forecast of $66.3 billion. Litkowski said the adjustment reflects smaller fall harvests than had been expected when the forecast was made in November.
Usually, the USDA makes its first farm forecast of the year in early February. This year, the forecast was delayed by the 35-day partial government shutdown. The next farm income forecast is due on August 30.