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Farm Economy Slumping into Fourth Quarter 2016

DanGeneral, Industry News Release

farm economy-concept-down farm economy
A report this week by the Federal Reserve Bank of Kansas City shows the farm economy slumping into the fourth quarter of the year. The bank says the U.S. farm economy weakened further in the third quarter despite an upward revision to farm income projections by the Department of Agriculture. Following a brief rebound in crop prices in the second quarter, the bank says profit margins for crop producers deteriorated in August and September. Profit margins also remained poor in the cattle and dairy sectors. Agricultural credit conditions have weakened further as loan repayment problems have picked up steadily, and bankers in the Midwest have expressed increasing concerns about the softening farm economy spilling over to Main Street business activity in rural areas.

From the National Association of Farm Broadcasting news service.

From: Federal Reserve Bank of Kansas City

Farm Income

In August, expectations for 2016 farm income were revised up modestly from the February forecast, but income was still expected to decline notably from a year ago. The U.S. Department of Agriculture’s August revision can be interpreted as both positive and negative for the farm sector. On the positive side, farm income expectations for 2015 and 2016 were revised up by 43 percent and 31 percent, respectively (Chart 1). On the negative side, however, the expected decline in farm income from 2015 to 2016 widened from 3 percent earlier in the year to 11 percent in the most recent report. Essentially, farm income was higher than initially forecasted, but the deterioration from a year ago is now believed to be sharper than expected.


The improvement in farm income expectations was largely due to downward revisions in production costs for the farm sector as revenue expectations continued to weaken. Whereas cash receipts in the crop sector generally were expected to remain unchanged in February, the revision in August pointed to a decline of about 4 percent from a year ago (Chart 2). Similarly, in the livestock sector, the August report predicted a 10 percent drop in cash receipts from a year ago, slightly more than expected in February. Production costs for 2016, however, were also revised lower and more than offset the more pessimistic outlook for revenue. Total production expenses in the farm sector were anticipated to be more than 7 percent less than expected earlier in the year, with much of this adjustment coming from a reduction in capital outlays (Chart 3).


Profit Margins

Although U.S. farm income expectations were revised up in August, profit margins for many producers of major U.S. agricultural commodities weakened significantly in the third quarter. In the crop sector, the range of average monthly prices throughout 2016 has left very few opportunities for producers to sell at a profit (Charts 4a – 4d). Since 2013, profit margins have dropped precipitously for corn, soybeans, wheat, and cotton, and both wheat and corn prices were hovering at or near 10-year lows in September.

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