By: Tony Dreibus, Successful Farming
Net farm income, a gauge of profits, is expected to drop 12% year-over-year in 2018 amid low crop prices and rising expenses, the U.S. Department of Agriculture (USDA) said in a report on Friday.
Profits are pegged at $66.3 billion this year, down from $75.4 billion in 2017, according to the USDA’s Economic Research Service (ERS). Adjusted for inflation, the decline will be 14%.
Net cash farm income, which encompasses receipts from farming as well as farm-related income including government payments, minus cash expenses, is forecast to drop by 8.4%, or $8.5 billion, to $93.4 billion, the ERS said. Net farm income, by contrast, is considered a more comprehensive measure as it also includes non-cash items such as inventories, economic depreciation, and rental income.
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When adjusted for inflation, cash receipts for all commodities will fall 1.6% year-over-year as crops decline 0.8% and livestock drop 2.5%, the USDA said.
“Yeah, I can see that – expenses are up and incomes are down because of the price levels we’re at,” said Larry Glenn, a commodities broker at Frontier Ag in Quinter, Kansas. “I was visiting with one guy in particular who said he’d never had to borrow money to operate, but he had to do that last year. The last two years have been rough.”
Government payments are forecast to rise 18% to $13.6 billion in 2018 with the bulk of the increase due to supplemental and miscellaneous programs including the Market Facilitation Program that’s designed to make up for what farmers are losing in the ongoing trade war with China.
While farm income will drop, outlays are rising.
Production expenses are forecast to rise by 4.2% to $369.1 billion in 2018, led by increases in spending on fuel and oil, interest, feed, and labor, according to the USDA.
Equity in the farm sector is expected to rise 1% to $2.63 trillion in 2018, while assets are forecast to rise 1.4% to $3 trillion, the government said. The increase in assets is due to an anticipated 2.1% rise in farm real estate values. Adjusted for inflation, however, equity is seen down 0.9% and assets are expected to drop 1.3%.
Farm debt is forecast to increase 4.2% to $409.5 billion, led by an expected increase of 5.4% in real estate borrowing, the ERS said.
“Farmers have been buying land and paying for land, so they have assets, but they’re cash poor,” Glenn said. “Some will have to take their land assets and put it against some operating expenses, and they don’t want to have to do that.”
The average net cash farm business income is expected to decline 16% to $69,800 this year, which if realized would be the fourth consecutive decline and the lowest since record-keeping started in 2010, the government said. Median income on an inflation adjusted basis, meanwhile, will decline 1.5% to $76,594.
“Every resource region of the country is forecast to see farm business average net cash farm income decline,” the USDA said. “Most categories of farm businesses are expected to see declines, with dairy farm businesses expected to see the largest” as the government pegs income for dairies down 41% from 2017.