It won't come as a surprise U.S. dairy and overall farm income will be lower in 2015. USDA's latest Farm Sector Income and Finances report forecasts how much.
Both net cash and net farm income are forecast to decline for the second consecutive year after reaching recent highs in 2013. Net cash income is expected to fall by 27.7% in 2015, while the forecast 38.2% drop in net farm income would be the largest single-year decline since 1983 (in both nominal and inflation-adjusted terms).
On a positive note, total production expenses are forecast to fall 2.3%, the first year-over-year decline since 2009. However, the drop in expenses alleviates, but does not completely offset, the effect of the drop in cash receipts, leading to tighter margins.
The reduction in crop and livestock receipts is largely driven by changes in price rather than changes in output.
• Livestock receipts could fall by 12.0% ($25.4 billion) in 2015, a reversal from the 43.8% increase in receipts over 2005-14 period. Much of the decline is due to falling dairy and hog receipts, but broilers and cattle/calves are implicated as well. After reaching a record high of $49.3 billion in 2014, U.S. dairy producer milk receipts are expected to drop 28.2% in 2015, as declining prices more than offset an expected increase in milk production. (See data on value of livestock production and livestock/products cash receipts.)
• Crop receipts are expected to decrease by 8.7% ($18.2 billion) in 2015, led by a forecast $8.6-billion decline in corn receipts, a $5.7-billion drop in soybean receipts, and a $2.7-billion drop in wheat receipts.
• Government payments are projected to rise 10.4% ($1.0 billion) to $10.8 billion in 2015.
• Total production expenses are forecast to fall 2.3%, the first year-over-year decline since 2009.
• After several years of steady improvement, farm financial risk indicators such as the debt-to-asset ratio are expected to rise in 2015, indicating increasing financial pressure on the sector. However, debt-to-asset and debt-to-equity ratios remain low relative to historical levels.
• Declining farm sector assets resulting from a modest decline the in value of farmland, investments, and other financial assets as well as higher debt are forecast to erode equity by 4.8%, the first drop since 2009.
Values also lower
The annual value of U.S. agricultural sector production is expected to fall 9.2% to $427.7 billion in 2015, as the value of both crop and livestock production decline (see table on value of production). The value of production is comprised primarily of cash receipts adjusted for any changes in inventories and home consumption use, plus all farm-related income.
The falling value of crop production (to a forecast $186 billion in 2015) represents a second consecutive decline from 2013's record high of $233.2 billion, and the third straight year of declining crop cash receipts despite a net inventory reduction. The value of U.S. livestock production is also forecast to decline 12.3% (to $191.3 billion) in 2015 as a large drop in receipts more than offsets the sector's inventory expansion.
Production expenses decline for the first time since 2009
Year-over-year reductions in farm production expenses are infrequent. However, in 2015, for the first time since 2009 and for the third time since 2000, total farm production expenses are forecast to fall. The $7.7 billion decline, about 2%, follows a period of rapid increases in production expenses, on average, of over 9% annually (in nominal terms) from 2010 to 2014. Despite the decline in 2015, production expenses are still projected to be high by historic standards, behind only 2014 in both real and nominal terms. The drop in expenses alleviates, but does not completely offset, the effect of the drop in cash receipts, leading to tighter margins.
The forecast decline in expenses is driven primarily by lower spending on feed, fuel and fertilizer, which outweigh expected increases in spending on labor, interest and property taxes/fees. Interest outlays are up significantly due to forecast increases in farm debt. Interest paid on debt secured by real estate is expected to increase by almost 19% in 2015, to $11.4 billion. Interest payments for nonreal estate debt are also expected to increase by 23% based on continued demand for operating and other types of nonreal estate loans.