Source: USDA ERS
Net farm income, a broad measure of profits, is forecast to decrease $9.1 billion (12.1 percent) from 2017 to $66.3 billion in 2018, after increasing $13.8 billion (22.5 percent) in 2017. Net cash farm income is forecast to decrease $8.5 billion (8.4 percent) to $93.4 billion. In inflation-adjusted 2018 dollars, net farm income is forecast to decline $10.8 billion (14.1 percent) from 2017 after increasing $13.0 billion (20.2 percent) in 2017. If realized, inflation-adjusted net farm income would be 3.3 percent above its level in 2016, which was its lowest level since 2002.
[In the text below, year-to-year changes in the major aggregate components of farm income are discussed only in nominaldollars unless the direction of the change is reversed when looking at the component in inflation-adjusted dollars.]
- Farm sector net farm income in 2018 is expected to decline $9.1 billion (12.1 percent) from 2017 to $66.3 billion. Farm sector net cash income in 2018 is expected to decline $8.5 billion (8.4 percent), to $93.4 billion. Overall, farm cash receipts are forecast to increase $2.5 billion (0.7 percent) to $374.8 billion in 2018. Total crop receipts are expected to increase $3.0 billion (1.5 percent) while total animal/animal product receipts are expected to decrease $0.4 billion (0.2 percent) from 2017 levels. When adjusted for inflation, both crop and livestock farm cash receipts are forecast to decline in 2018, with total farm cash receipts forecast to decline $6.1 billion (1.6 percent).
- Corn cash receipts are forecast up $1.9 billion (4.1 percent) due largely to expected higher prices, while soybean cash receipts are forecast up $1.8 billion (4.6 percent) due to expected higher quantities sold.
- Vegetable/melon cash receipts are forecast down $1.7 billion (8.5 percent), due to expectations for both lower quantities sold and lower prices.
- Cash receipts for poultry/eggs are forecast up $4.0 billion (9.5 percent) due to expected higher prices and quantities sold for broilers and chicken eggs.
- Milk and meat animal cash receipts are forecast down $2.7 billion (7.1 percent) and $2.0 billion (2.3 percent) respectively, due to expected lower prices.
- Direct government farm payments—which include Federal Government farm program payments paid directly to farmers and ranchers but exclude USDA loans and insurance indemnity payments made by the Federal Crop Insurance Corporation (FCIC)—are forecast to increase $2.1 billion (17.9 percent) to $13.6 billion in 2018, as increased payments from Supplemental and Ad Hoc Disaster Assistance and miscellaneous programs (including the Market Facilitation Program) more than offset declines in Agriculture Risk Coverage and Price Loss Coverage payments.
- FCIC indemnities—payments made by private insurance companies to farm operators for their insured commodity losses—are forecast to rise by $0.7 billion (14.1 percent) to $6.0 billion in 2018. FCIC premiums paid by farm operators are expected to decline by $0.3 billion (7.8 percent).
- Total production expenses, including expenses associated with operator dwellings, are forecast to increase $14.8 billion (4.2 percent) in 2018 to $369.1 billion. Expenses for fuels/oils are forecast up $2.4 billion (18.7 percent) and interest expenses, including dwellings, are forecast up $3.4 billion (18.1 percent). Hired labor expenses are forecast to increase $1.7 billion (5.7 percent). Feed expenses are forecast to increase $3.1 billion (5.6 percent).
- Farm sector equity is expected to increase by 1.0 percent to $2.63 trillion in nominal terms. Farm sector assets are forecast to increase 1.4 percent in 2018 to $3 trillion as farm real estate assets are forecast to increase 2.1 percent. When adjusted for inflation, farm sector equity and assets are forecast to decline slightly. Liquidity measures are expected to decline, with working capital levels forecast down 31 percent from 2017. Farm sector debt is forecast to rise 4.2 percent to $409.5 billion in nominal terms, with real estate debt forecast to rise 5.4 percent to $250.9 billion. Debt-to-asset levels for the sector are forecast to rise again in 2018, continuing an upward trend since 2012.
Value of Agricultural Sector Production To Be Relatively Unchanged in 2018
The value of agricultural sector production is the sum of crop and livestock value of production plus farm-related income. Increases are expected for the value of crop production ($1.4 billion or 0.8 percent), while the value of production for animal and animal products is forecast to decline slightly ($0.6 billion or 0.3 percent). (See detail on value of production in the table on value added.) Farm-related income is expected to rise $2.8 billion (5.5 percent). In total, the value of U.S. agricultural sector production is expected to rise $3.7 billion (0.9 percent) in 2018 to $421.8 billion. However, after adjusting for inflation, the value of U.S. agricultural sector production is expected to decline $6.1 billion (1.4 percent).
The value of crop production is the sum of crop cash receipts from crop sales over the calendar year, adjusted for any changes in the value of crop inventories from the beginning to the end of the calendar year and for annual home consumption of crops grown on the farm or ranch operation. The forecast increase of $1.4 billion in 2018 reflects a more than $1.5-billion decrease in the value of inventory adjustment, with cash receipts up almost $3 billion and a small increase in crop home consumption.
The value of production for animals/animal products is the sum of cash receipts from their sale over the calendar year, adjusted for any changes in the value of their inventories from the beginning to the end of the calendar year, and for annual home consumption of animals/animal products produced on the farm or ranch. The forecast decrease of $0.6 billion in the value of animals/animal product production reflects an expected $0.2-billion decrease in the value of inventory adjustment and a $0.4-billion decrease in cash receipts. Home consumption increased slightly.
Farm-related income is expected to rise in 2018, with all of its component categories forecast to increase. Total commodity insurance indemnities are forecast to have the largest dollar increase, at $2.0 billion (27.4 percent).
Total Crop Receipts Expected To Be Relatively Flat in 2018
Crop cash receipts are forecast to be $199.2 billion in 2018, an increase of $3.0 billion (1.5 percent) from 2017. However, when adjusted for inflation, crop cash receipts are forecast to decline $1.6 billion (0.8 percent). In nominal terms, corn receipts are expected to rise $1.9 billion (4.1 percent) in 2018, reflecting higher prices. Wheat receipts are expected to increase over $0.4 billion (5.1 percent) from 2017 as a predicted decline in quantity sold is more than offset by an expected increase in the price of wheat. Soybean receipts in 2018 are expected to increase ($1.8 billion or 4.6 percent) as an anticipated price decline is more than offset by higher expected quantities sold. Rice receipts are forecast to decrease ($25.3 million or 1.0 percent) in 2018 despite a substantial price increase, reflecting lower quantities sold. The expected decrease ($81.4 million or 1 percent) in 2018 cotton receipts reflects lower upland cotton lint and cottonseed receipts more than offsetting an increase in long-staple (Pima) cotton receipts. Vegetable and melon cash receipts are expected to fall $1.7 billion (8.5 percent) in 2018 despite expected increases in dry bean (9.8 percent) and potato (1.4 percent) receipts. Cash receipts for fruits and nuts are expected to decline over $0.5 billion (1.7 percent) in 2018.
Animal/Animal Product Receipts Forecast Down Slightly in 2018
Total animal/animal product cash receipts are expected to fall $0.4 billion (0.2 percent) to $175.6 billion in 2018. Declining receipts for milk, turkeys, and red meat animals are projected to more than offset higher receipts from broilers, chicken eggs, and miscellaneous animals and products.
Milk receipts are expected to decrease $2.7 billion (7.1 percent) in 2018, reflecting an expected price decline that more than offsets increased quantities of milk sold. Cash receipts from cattle and calves are expected to decrease $0.9 billion (1.4 percent) as a forecast increase in quantity sold is more than offset by a forecast price decline. Hog cash receipts are expected to decline $1.1 billion (5.2 percent) in 2018, reflecting an expected price decline.
Broiler receipts are expected to rise $2.2 billion (7.2 percent) in 2018 as larger quantities are forecast to be sold at a higher price. Chicken egg receipts are expected to rise $2.9 billion (37.9 percent), reflecting larger quantities sold at a higher price. Turkey receipts are expected to decline $1.0 billion (20.7 percent) in 2018, with expectations of both declining prices and quantities sold.
Expected Decline in Commodity Prices More Than Offset by Increased Quantities Sold
To better understand the factors underlying the forecast change in annual receipts from 2017 to 2018, we decompose the change into two separate effects: (1) a “price effect” where we project the change in cash receipts associated with holding the quantity sold constant at 2017 levels and allowing prices to change to forecast 2018 levels, and (2) a “quantity effect” where prices are held constant from 2017 and quantities change to forecast 2018 levels. Overall, a $5-billion negative price effect, consisting of a $0.9-billion effect from crops and $4.1 billion from animal/animal products, was more than offset by a $6.8-billion positive quantity effect from increased quantities sold from both crops and animals/animal products. Additionally, cash receipts increased $0.8 billion for commodities whose price and quantity effects could not be separately determined.
Direct Government Farm Payments Forecast To Increase in 2018
Direct government farm program payments are those made “directly” by the Federal Government to farmers and ranchers without any intermediaries. They include payments from the programs created in the 2014 Farm Bill, as well as a few other programs. Government payment amounts do not include FCIC insurance indemnity payments, listed as a separate component of farm income, or USDA loans, listed in the balance sheet. Direct government farm program payments are forecast to increase 17.9 percent ($2.1 billion) from 2017 to 2018 (see table on government payments). The change reflects forecast increases in payments from the Cotton Ginning Cost Share program, the Margin Protection Program for Dairy, disaster and conservation programs, and miscellaneous programs. The large increase in miscellaneous program payments reflects payments under the Market Facilitation Program, which is part of the Trade Mitigation Package to assist farmers in response to trade disputes as announced in late August 2018. After adjusting for inflation, the annual increase in direct government farm program payments is 15.2 percent ($1.8 billion).
Crop Price-Based Programs Forecast To Decline
Payments under the 2018 Price Loss Coverage (PLC) and Agriculture Risk Coverage (ARC) programs are expected to decline due to higher 2017/2018 market prices for most key crops (those that generated the majority of past years’ PLC and ARC payments). Similarly, increased 2017/2018 crop marketing year prices for covered crops under the Marketing Loan Gain or Loan Deficiency Payment programs mean no payments are anticipated in 2018 for those programs.
PLC is a price-based program where direct government farm payments are issued for eligible crops and acres if the effective price for a commodity is less than the reference price for that commodity. The larger the difference, the larger the payment. The decrease of $1.2 billion (37.8 percent) forecast for PLC payments in 2018 reflects rising season-average prices for the 2017/2018 crop marketing year. Wheat, long-grain rice, peanuts, and sorghum are projected to receive about 90 percent of 2018 PLC payments.
ARC is a revenue loss protection program where per-acre payments are issued for a covered crop when the ARC guaranteed payment per acre exceeds the actual county crop revenue per acre for that commodity. The ARC benchmark revenue is calculated based on a 5-year Olympic average of U.S. prices (the ARC benchmark price) and county yields (ARC county guarantee yield) for the 5 crop marketing years preceding the current one. The actual county revenue per acre is based on the actual ARC price (higher of the U.S. season-average price or national loan rate) and the average county yield per acre for the covered commodity for the current marketing year (2017/2018). ARC payments are limited, however, by the maximum ARC payment rate for that county’s covered crop.
ARC benchmark prices declined in crop year 2017/2018 for key ARC covered crops, reducing the ARC benchmark revenue rate and the ARC maximum payment rate. In addition, higher 2017/2018 crop marketing year prices have reduced the gap between the ARC benchmark revenue rate and actual county revenues. As a result, ARC payments in 2018 are expected to decline almost $2.8 billion (72.6 percent) from 2017, with corn, wheat, and soybeans together accounting for over 90 percent of payments. Corn, which received over 74 percent of 2017 ARC payments, is expected to obtain about 38 percent in 2018.
Conservation Payments and All Other Farm Program Payments Forecast To Increase
Conservation payments—reflecting the financial assistance programs of USDA’s Farm Service Agency and Natural Resources Conservation Service—are expected to exceed $3.9 billion in 2018, up 2.5 percent from 2017.
The Dairy Margin Protection Program (MPP) is forecast to make net payments of $187.8 million to dairy operators in 2018, which is almost 17 times the total payments made since the program began in 2015. This forecast increase reflects key changes in the program enacted in the Bipartisan Budget Act of 2018.
Supplemental and ad hoc disaster assistance payments in 2018 are forecast to increase $0.9 billion (130.3 percent) above their 2017 level. A large increase is anticipated in the livestock disaster programs and the Noninsured Crop Disaster Assistance Program (NAP). However, the majority of the spending increase is from a new program, the Wildfire and Hurricane Indemnity Program (WHIP), enacted through the Bipartisan Budget Act of 2018.
The large increase in the 2018 forecast for the miscellaneous programs category reflects payments from the Market Facilitation Program. This program provides direct payments to assist corn, cotton, sorghum, soybean, wheat, dairy, hog, shelled almond, and fresh sweet cherry producers in response to trade disruptions. The forecast reflects payments issued on the first 50 percent of U.S. producers’ total production of the commodity.
Production Expenses Forecast To Increase in 2018
After reaching a record high exceeding $390 billion (nominal) in 2014 and then declining by $31 billion in 2015 (8 percent), farm sector production expenses (including expenses associated with operator dwellings) stabilized at an average $354.6 billion from 2015 to 2017. In 2018, production expenses are forecast at $369.1 billion, up 4.2 percent ($14.8 billion) from 2017, with most categories of expenses projected to increase. When adjusted for inflation, total production expenses are forecast to rise 1.8 percent. See data tables on production expenses.
- Interest expenses (including those associated with operator dwellings) are expected to increase for the fifth consecutive year, rising 18.1 percent ($3.4 billion in nominal terms, to $22.1 billion) in 2018. This increase is the result of rising interest rates on all new debt, as well as on existing variable-interest-rate debt, and higher forecast debt levels.
- Feed expenses, which account for 18 percent of cash expenses, are forecast to increase 5.6 percent (to $58.3 billion) in 2018. This would be the first increase in feed expenses since 2014.
- Spending on fuels and oils is expected to increase 18.7 percent (to $15.3 billion) on top of a 5.9-percent increase in 2017. The 2018 forecast is driven in part by the U.S. Energy Information Agency’s November forecast of higher diesel prices (up by 53 cents per gallon, on average) in 2018.
- Hired labor costs are forecast to increase in 2018 by 5.7 percent (to $30.5 billion), and have been on an upward trend since 2015. Wage rate increases are expected to put upward pressure on hired labor costs.
- Counter to most other production expenses, spending on fertilizer, lime, and soil conditioner is forecast to decline 1.3 percent (to $21.8 billion) as fertilizer prices are expected to continue to decline slightly. Spending on fertilizer has decreased every year since 2012.