Net farm income for 2018 is projected to hit the lowest level since 2006, according to a report released today from the USDA's Economic Research Service.
The 6.7 percent drop from the latest 2017 forecast, from $63.8 billion to $59.5 billion, is due largely to a $3.5 billion increase in production costs and a $2.1 billion decrease in government payments.
Net income reached a record $123.8 billion in 2013, before experiencing a sharp decline and is now forecast to be less than half that figure. Carrie Litkowski, senior economist with ERS, says the numbers now appear to be stabilizing.
“It does, to me, look like a flattening so far," she said during a webcast following the report’s release.
The projected 12-year low comes as Congress begins debate on a new five-year farm bill and may provide commodity groups with new evidence for a strengthened safety net. The report predicts year-over-year declines in most commodities, with soybeans the sole crop where increased cash receipts are expected. Still, income from soybeans is projected to decline, despite increased production.
"Cash receipts for all commodities are forecast to fall (in nominal dollars) $2.0 billion (0.5 percent) in 2018 to $363.1 billion. Relatively small annual declines are predicted for both animal/animal product (0.3 percent) and crop (0.8 percent) receipts," the report said.
"Forecast declines in receipts for milk and poultry/eggs are expected to more than offset a forecast increase in meat animal receipts. A forecast $1.7-billion (4.5 percent) increase in soybean receipts will be more than offset by expected declines in receipts for wheat, corn, cotton, fruits/nuts, and vegetables/melons."
Net income from dairy, after an increase in 2017, is expected to return to more normal levels due to lower milk prices. This is expected to hit the Northern Crescent region – from Maine to Minnesota – particularly hard with a 12.4 percent decrease forecast in net cash income.
John Newton, director of market intelligence for the American Farm Bureau Federation, agreed with Litkowski's analysis, saying income levels “certainly seem to be stabilizing to the level prior to 2009 and 2010."
Median farm income, projected as a loss of $1,318 in 2018, represents some of the stagnation the sector has experienced. Total household income is forecast to rise slightly --but from off-farm income.
"We’re seeing some negative pressure on prices, especially in grains and the dairy sector," Newton said. "Unfortunately, that means for many farmers their revenue is not exceeding their cost of production."
The 1 percent projected rise in the costs of production is due mainly to increases in fuel prices, interest expenses and labor costs. Feed and seed expenses, however, will continue to decline, the report says.
This, Newton says, illustrates the need for a new farm bill that will assist financially imperiled farmers. “Folks have burned through equity in recent years," he said, though the ERS has drawn the opposite conclusion.
"While some farmers may be struggling financially, (debt-to-equity) ratios remains historically low and suggest the likelihood of default within the sector remains low," Litkowski said.
An 18.6 percent drop in government payments, primarily through Price-Loss Coverage and Agricultural Risk Coverage, also contributes to the loss in income. Indemnities are projected to increase $3.8 billion in 2018, "reflecting a return to more normal or average weather," Litkowski said.