2016 Farm Sector Income Forecast
Ag Sector Weakness Forecast To Continue Into 2016
Both net cash and net farm income are forecast to decline for the third consecutive year after reaching recent highs in 2013 for net farm income and 2012 for net cash income. Net cash farm income is expected to fall by 2.5 percent in 2016, while net farm income is forecast to decline by 3 percent. These declines are moderate compared to the 27- and 38-percent reductions in net cash income and net farm income, respectively, that occurred in 2015.
- Cash receipts are forecast to fall $9.6 billion (2.5 percent), led by a $7.9-billion, or 4.3-percent, drop in animal/animal product cash receipts, and a smaller ($1.6 billion or 0.9 percent) decline in crop receipts.
- The expected drop in 2016 cash receipts is led by declines in nearly all major animal/product categories (including dairy, meat animals, and poultry/eggs), as well as vegetables and melons. Feed crop cash receipts are also expected to fall.
- While overall cash receipts are expected to decline, receipts for several commodities— including turkeys, cotton, rice, sorghum, oil crops, dry beans, potatoes, and sugarcane/sugar beets are forecast to rise by at least 1 percent in 2016.
- Direct government farm program payments are forecast to increase in 2016 by $3.3 billion, or 31.4 percent.
- A drop in overall production expenses is forecast for 2016, cushioning the decline in cash receipts. Notably, expenses for inputs that typically are produced by the farm sector itself, including feed, as well as livestock/poultry purchases, are expected down. Also, expenses for fuels and oils are forecast down by 14.5 percent in 2016. If realized, the expenses across each of these three categories will have fallen for 3 straight years. In contrast, hired labor costs and interest expenses are forecast to increase by $1.5 billion (5 percent) and $1.3 billion (6.8 percent), respectively, over 2015.
- The value of total farm sector equity is forecast down by $54.9 billion (2.2 percent) in 2016, as farm sector assets are seen declining and debt levels increasing relative to 2015. In particular, the value of real estate is forecast down by $28.8 billion (1.2 percent) and the (inventory) value of crops, animals/animal products, and purchased inputs down by $12.9 billion (6.7 percent) relative to 2015.
- The balance sheet changes result in a worsening of farm solvency measures, which nevertheless remain near historic lows. Liquidity positions have likewise deteriorated, on average.
Value of Ag Production Forecast To Fall for Third Straight Year
The annual value of U.S. agricultural sector production is expected to fall 2.1 percent to $417.3 billion in 2016, due to declines in the value of both crop and livestock production (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, plus all farm-related income. If realized, the falling value of crop production (to a forecast $183.5 billion in 2016) would represent a third consecutive decline from 2013’s record high of $233.2 billion, and a fourth straight year of declining crop receipts. The forecast reduction in crop value of production for 2016 reflects both lower cash receipts and the sale of crop inventories. The value of U.S. livestock production is also forecast to decline 4.6 percent (to $181.4 billion) in 2016 as lower prices are expected to lead to a second consecutive large drop in receipts.
The value of agricultural production is also affected by changes in commodity insurance indemnities received by the farm sector. Corn, soybeans, and wheat accounted for over 70 percent of 2015 Federal crop insurance indemnities. Weather (yield loss) events were few and prices relatively stable in the 2015 crop year, so the loss ratio (gross indemnities relative to total premiums) is forecast to be lower than in recent years. Commodity indemnities (and farm premiums) for all crops are expected to increase slightly in 2016, reflecting lower crop prices and yields, increased uptake of the Stacked Income Protection Plan (STAX) and Supplemental Coverage Option (SCO), and the expansion of USDA’s Pasture, Rangeland, and Forage insurance policy.
Crop Prices and Receipts Forecast To Decline Modestly in 2016
Crop cash receipts—the cash income from crop sales—are forecast to fall 0.9 percent ($1.6 billion) in 2016 as prices continue to decline for most field crops. Cash receipts for corn and soybeans—historically the crops generating the highest crop cash receipts—are both expected to be fairly flat in 2016. Since hitting a record high in 2012, corn receipts are forecast to fall 36 percent through 2016, primarily due to lower prices. While production is expected to increase slightly in 2016, continued weakening in corn prices is expected to more than offset production gains, leading corn cash receipts to fall by $0.8 billion in 2016. In contrast, increases in soybean production are expected to outweigh small price declines, leading soybean cash receipts to increase 1.5 percent in 2016. After falling sharply in 2015, rice cash receipts are expected to increase 31.5 percent ($0.7 billion) in 2016 on higher expected production and prices.
Vegetable and melon cash receipts are expected to have the largest decline among all crop commodities in 2016, falling 7.2 percent ($1.4 billion). Dry bean and potato receipts are expected to increase 5.3 percent and 5.8 percent, while cash receipts for all other vegetables and melons are forecast to decline more than 11 percent. While prices are expected to be slightly lower in 2016, the drop in cash receipts for all other vegetables and melons is primarily driven by an expected decline in the production of processed vegetables. Processed tomatoes, which represent three-fourths of processed vegetable production, are the biggest driver of the decline, with area planted in California projected to fall.
Despite a small projected decrease in production, cash receipts for fruits and nuts are expected to remain stable in 2016 due to higher expected farm prices. Grapefruit and orange production is expected to fall as citrus greening disease has resulted in unmarketable fruit throughout Florida and elsewhere. California has historically accounted for a large portion of U.S. vegetable and fruit/nut cash receipts, and continued drought conditions may affect fruit/nut, vegetable cotton, and rice production going forward (for more information, see the ERS drought page).
Animal/Animal Product Receipts Forecast Sharply Lower in 2015 and 2016
Image credit: Courtesy USDA/ERS