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Highlights: ERS 2015 Farm Sector Income Forecast

On Tuesday, USDA’s Economic Research Service (ERS) released its 2015 Farm Sector Income Forecast, which stated that, “Net farm income is forecast to be $73.6 billion in 2015, down nearly 32 percent from 2014’s forecast of $108 billion. The 2015 forecast would be the lowest since 2009.”

ERS pointed out that, “The annual value of U.S. crop production is expected to decline in 2015 from 2013’s record high value, reflecting net inventory loss and the third straight year of declining cash receipts for crops. The largest forecast decline is for corn receipts, which have fallen 38 percent since 2012.”

With respect to livestock, the update explained that, “The value of U.S. livestock production is forecast to decline in 2015, as a sharp drop in receipts more than offsets a positive value of inventory change. Cattle/calf receipts are expected to grow significantly while hog and milk receipts decline. Prices are expected to increase for cattle and calves and drop for hogs and milk. Beef production and beef/veal exports are expected to decline while pork production and exports are expected to increase. Milk production and marketings are expected to increase in 2015 while milk exports are expected to decline.”

ERS also stated that, “The projected $2.5-billion increase in 2015 production expenses extends the upward movement in expenses that has occurred over the past 6 years. However, the increase in 2015 is expected to be the smallest since expenses declined in 2009.”

More specifically on production costs, the update indicated that, “Demand for feed should be up. The number of cattle on feed is projected to be slightly higher in 2015 and cattle are being fed to heavier weights because of lower feed prices. Hog and broiler production are both expected to be up more than 4 percent during 2015.

“Since cattle purchases comprise 75 percent of livestock and poultry purchases, they are still being driven by sustained high prices for feeder steers. The price for Oklahoma City feeder steers is forecast to rise 16.5 percent in 2015, due primarily to the tight inventory of cattle. High retail prices for beef, strong export markets, and lower feed costs continue to support demand for feeder cattle.

“The three major crop-related expenses—seeds, fertilizer, and pesticides—are forecast to decrease a combined $0.5 billion (0.8 percent) in 2015 due to small increases in seed and pesticide purchases and a decrease in fertilizer purchases.”

In addition, “Fuel and oil expenses are forecast to decrease by 26.7 percent in 2015. Corresponding to the drop in oil prices, the Department of Energy projects a 34-percent drop in the price of diesel in 2015.”

On the issue of government payments, ERS stated in part that, “The initiation of new programs under the Agricultural Act of 2014—such as the Price Loss Coverage (PLC) and Agricultural Risk Coverage (ARC) programs—is expected to lead to a 15-percent increase in government payments in 2015 (see table on government payments). Payments under these new programs are projected to exceed recent payments under some repealed programs such as the Direct and Countercyclical program and the Average Crop Revenue Election program.

“Upland cotton is the only formerly covered commodity that will not qualify in either PLC or ARC. The Cotton Transition Assistance Program was designed to issue payments in 2014 and 2015 only. Those payments should decline sharply in 2015 as they are limited to upland cotton farmers in counties not yet covered by the new Stacked Income Protection (STAX) program.

“The Milk Income Loss Contract ended in 2014 and is replaced by the Dairy Margin Protection and Dairy Product Donation programs. However, no payments are expected under these programs in 2015, as prices remain high enough not to trigger payments.”

In a more specific update on Assets, Debt, and Wealth, ERS stated that, “Historically, farmland values have driven changes in the total value of farm sector assets, due to the large proportion—82.6 percent in 2013—of the sector’s assets held in real estate. Accordingly, the projected moderation in farm sector asset growth in 2015 is primarily driven by a 0.8-percent decline in the value of farm real estate. Farmland values have increased rapidly in recent years, as high crop prices and low interest rates led to strong demand. With receding crop prices and higher expected borrowing costs, farmland value growth is forecast to moderate in 2014 before declining in 2015. The projected decline in farm real estate asset value also reflects a projected drop in the amount of land in farms, continuing a gradual, historical decline.”

And with respect to Farm Business Income, ERS indicated that, “The forecast average net cash farm income (NCFI) of $79,200 for all farm businesses in 2015, a decline of 22.7 percent from 2014 (see table), is in line with the sectorwide forecast decline for NCFI, which represents the amount of cash available to service debt, pay family living expenses, and make investments. It is not a comprehensive measure of profitability, however, since it does not account for changes in inventory, accounts payable, accounts receivable, and depreciation.”

Keith Good