Financial outlook for farms and farm households provided in August update

Mitch Morehart is a senior agricultural economist in the farm economy branch of the USDA Economic Research Service. He is responsible for establishing USDA’s annual perspective about the financial status of farms and farm households in the United States.

“Both net cash and net farm income are forecast to decline for the second consecutive year, after reaching recent historic highs in 2013,” Morehart began in an Aug. 25 Farm Financial Forecast webinar.

“Net cash income is expected to fall by 21 percent while the 36 percent drop in net farm income would be the largest percentage drop since 1983,” he continued.

Net cash income is expected to decrease by more than $26 billion in 2015 to $100.3 billion, a nearly 21 percent decline from 2014. This follows an $8.5 billion and six percent decline in 2014.

“The 2015 forecast will be slightly above the previous 10 year average of $99.6 billion,” he noted.

Government payments are expected to make a more significant contribution to net cash income in 2015 at 11 percent, up from eight to nine percent from 2011-14.

Net farm income

“Net farm income is the key measure in farm sector profitability and includes depreciation, inventory and changes in other non-money or non-cash expenses,” Morehart continued.

The predicted $58.3 billion for nominal net farm income in 2015 would be an approximately 36 percent, or $32.8 billion, decline from 2014.

“The 2015 forecast would also be about $25 billion below the previous 10-year average,” he noted for net farm income.

Crop receipts in 2015 are expected to decrease by over six percent, nearly $12.9 billion, to $195 billion.

“That’s partially led by three commodities – a $7.1 billion decline in corn, a $3.4 billion drop in soybean receipts and a $1.6 billion drop in wheat receipts,” Morehart stated.

Animal and product receipts are expected to fall by over nine percent at $19.4 billion in 2015, due to a 29 percent drop in dairy and a 27 percent drop in hog receipts.

“Cattle receipts are down slightly but still remain strong relative to their recent history,” he added.

Production expenses

In farm production expenses, fuel and energy-related expenses are expected to decrease while interest rates and labor costs are expected to increase.

“Fuel has dropped by almost 28 percent and fertilizer and fuel related expenses have dropped seven percent,” Morehart commented.

Interest paid on debt secured by real estate is expected to increase by almost 23 percent to just under $12 billion, and interest payments for non-real estate debt is also expected to increase substantially to $7.5 billion, a 25 percent increase over 2014.

“Labor costs are expected to increase in 2015 by over four percent, with most of the increase driven by higher expected wage raises,” he said.

Overall, farm production expenses in 2015 are predicted to decrease for the first time since 2009.

Assets

“Switching to the balance sheet, since last declining in 2009, sector assets increased rapidly and low borrowing costs, high ag commodity prices and rising farm income led to a strong demand for farm assets, particularly real estate and vehicles and machinery,” Morehart continued.

However, lower prices are expected in 2015. This, along with an expected decrease in farm income, results in a forecast for a 3.5 percent decline in farm assets in 2015.

“We are also projecting a 5.8 percent increase in farm debt in 2015,” he added.

Given the drop in assets and increase in debt, farm sector equity is forecasted to fall by 4.8 percent in 2015.

Natasha Wheeler is editor of the Wyoming Livestock Roundup and can be contacted at natasha@wylr.net.