Producers across the Midwest have experienced strong net farm income in recent years. However many question what will happen the next several years with a reduction in crop prices. This is the second in a series that looks at farmland values. Read the first post to see average crop & pastureland values and change in value from 2013 to 2014.
In its November 25, 2014 farm financial indicator release, the USDA projects 2014 total U.S. net farm income at a forecasted value of $96.9 billion, a decline of $25.9 billion from the record $122.8 billion in 2013. This decline can be primarily attributed to a large decline (-$27.2 billion) in crop receipts due to lower prices, a $4.6 billion projected decline in other farm-related income, and an increase of $19.4 billion in farm cash expenses. Partially offsetting this decline is a $25.7 billion forecast increase in livestock cash receipts due to record high prices for most meat livestock and dairy. Inventory values of both crops and livestock are projected to decline by $1.3 billion, but this is more than offset by a $2.9 billion increase in non-cash farm income. Non-cash farm expenses are projected to increase by just $0.4 billion.
The accompanying net farm income chart shows the long-term NFI (nominal and real) projections from the USDA and Food and Agricultural Policy Institute (FAPRI) long-term baseline projections released earlier this year (USDA in January, FAPRI in March). Both show significant projected declines in real NFI over the next five years with some leveling off thereafter.
FAPRI has real NFI (2013 dollars) declining by 36.4 percent from 2013 to 2018. The bulk of the decline is projected to occur in 2014 (down 25.1 percent). Further significant declines are projected for 2015 (-4.7 percent) and 2016 (-4.6 percent), with an average annual decline of 2 percent per year thereafter. Unlike USDA, the FAPRI forecast does not show any increase in real NFI in any of the years from 2014 to 2023.
FAPRI & USDA Net Farm Income Forecasts, 2014 Baseline
Real Values in 2013 Dollars Source: FAPRI & USDA
USDA is significantly more bearish on real NFI in the near term, with a total decline of 42.1 percent from 2013 to 2018. As was the case with the FAPRI forecast, USDA has NFI coming down significantly in 2014 (-26.6 percent) but forecasts a slight rebound in 2015 (0.3 percent) before entering a second wave of significant downturns in 2016 to 2018, averaging a decline of 5.1 percent per year over this three-year period. Thereafter, USDA estimates real NFI actually recovering slightly and growing at an average rate of 1.8 percent from 2019 to 2023.
Both forecasts have real NFI declining to just below 60 percent of the record 2013 value. This paints a quite bleak picture for farm incomes over the next 10 years. However, even if real NFI falls to $76 billion in 2023, as predicted by USDA, this is still above the long-term average of approximately $71 billion (in 2009 dollars) since 1929.
*Information in this post was provided by AgriBank. AgriBank is FCS Financial’s funding source. It is one of the largest banks within the national Farm Credit System, with more than $80 billion in total assets. Under the Farm Credit System’s cooperative structure, AgriBank is owned by 17 affiliated Farm Credit Associations. The AgriBank District covers America’s Midwest, a 15-state area from Wyoming to Ohio and Minnesota to Arkansas. More than half of the nation’s cropland is located within the AgriBank District, providing the Bank and its Association owners with exceptional expertise in production agriculture. For more information, visit www.AgriBank.com.
USDA and FAPRI: Significant Declines in Net Farm Income Through 2018
In its November 25, 2014 farm financial indicator release, the USDA projects 2014 total U.S. net farm income at a forecasted value of $96.9 billion, a decline of $25.9 billion from the record $122.8 billion in 2013. This decline can be primarily attributed to a large decline (-$27.2 billion) in crop receipts due to lower prices, a $4.6 billion projected decline in other farm-related income, and an increase of $19.4 billion in farm cash expenses. Partially offsetting this decline is a $25.7 billion forecast increase in livestock cash receipts due to record high prices for most meat livestock and dairy. Inventory values of both crops and livestock are projected to decline by $1.3 billion, but this is more than offset by a $2.9 billion increase in non-cash farm income. Non-cash farm expenses are projected to increase by just $0.4 billion.
The accompanying net farm income chart shows the long-term NFI (nominal and real) projections from the USDA and Food and Agricultural Policy Institute (FAPRI) long-term baseline projections released earlier this year (USDA in January, FAPRI in March). Both show significant projected declines in real NFI over the next five years with some leveling off thereafter.
FAPRI has real NFI (2013 dollars) declining by 36.4 percent from 2013 to 2018. The bulk of the decline is projected to occur in 2014 (down 25.1 percent). Further significant declines are projected for 2015 (-4.7 percent) and 2016 (-4.6 percent), with an average annual decline of 2 percent per year thereafter. Unlike USDA, the FAPRI forecast does not show any increase in real NFI in any of the years from 2014 to 2023.
FAPRI & USDA Net Farm Income Forecasts, 2014 BaselineReal Values in 2013 Dollars Source: FAPRI & USDA
USDA is significantly more bearish on real NFI in the near term, with a total decline of 42.1 percent from 2013 to 2018. As was the case with the FAPRI forecast, USDA has NFI coming down significantly in 2014 (-26.6 percent) but forecasts a slight rebound in 2015 (0.3 percent) before entering a second wave of significant downturns in 2016 to 2018, averaging a decline of 5.1 percent per year over this three-year period. Thereafter, USDA estimates real NFI actually recovering slightly and growing at an average rate of 1.8 percent from 2019 to 2023.
Both forecasts have real NFI declining to just below 60 percent of the record 2013 value. This paints a quite bleak picture for farm incomes over the next 10 years. However, even if real NFI falls to $76 billion in 2023, as predicted by USDA, this is still above the long-term average of approximately $71 billion (in 2009 dollars) since 1929.
*Information in this post was provided by AgriBank. AgriBank is FCS Financial’s funding source. It is one of the largest banks within the national Farm Credit System, with more than $80 billion in total assets. Under the Farm Credit System’s cooperative structure, AgriBank is owned by 17 affiliated Farm Credit Associations. The AgriBank District covers America’s Midwest, a 15-state area from Wyoming to Ohio and Minnesota to Arkansas. More than half of the nation’s cropland is located within the AgriBank District, providing the Bank and its Association owners with exceptional expertise in production agriculture. For more information, visit www.AgriBank.com.
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