US farm sector profitability weakens considerably in 2015

Farm sector profitability in the United States is forecast to decline for the second straight year, according to the USDA’s Economic Research Service. Net cash farm income is forecast at $93 billion, down about 28% from 2014 levels. Net farm income is forecast to be $55.9 billion in 2015, down about 38% from 2014’s estimate of $90.4 billion. If realized, the 2015 forecast for net farm income would be the lowest since 2002 (in both real and nominal terms) and a drop of 55% from the recent high of $123.3 billion in 2013. The smaller change in net cash farm income relative to the broader net farm income measure is to be expected, because producers can exercise greater control on the timing of cash receipts and expenses and thereby moderate large swings from year to year.

Lower crop and livestock receipts are the main drivers of the decline in 2015, while cash production expenses are projected down by 2.3%. Crop receipts are expected to decrease by $18.2 billion (8.7%) in 2015, led by projected declines of $8.6-billion in corn receipts, $5.7 billion in soybean receipts, and $2.7 billion in wheat receipts, as prices for all three commodities declined. Livestock receipts are forecast to decrease by $25.4 billion (12%) in 2015. As with crop receipts, the primary driver is lower commodity prices, in this case for milk, hogs, broilers, and cattle/calves. Government payments are projected to rise $1.0 billion (10.4%) to $10.8 billion in 2015.

Farm asset values are forecast to decline by 2.8% compared to 2014, and farm debt is forecast to increase by 6.3%. The farm sector equity measure combines both of these, and is down by $104.2 billion (4.0%) compared to 2014. The primary driver of the drop in asset values is farm real estate, down $36.9 billion (1.6%). Debt is driven by increases in both real estate debt (up 6.1%) and nonreal estate debt (up 6.5%). While the movements in the balance sheet show an increasingly leveraged farm sector, risk measured at the sector level remains low.

US Secretary of Agriculture Tom Vilsack made the following statement:

“As one growing season comes to an end and another lies on the horizon, USDA continues to seek out new and innovative ways to expand opportunity for America’s farming families and support markets that will boost farm income. Roughly one in three American farm products are exported, but there is significant and as yet untapped opportunity in markets in Asia and Europe. By the end of the year, I will have met with key leaders in those regions to promote the benefits of the Trans-Pacific Partnership and further negotiations on the Transatlantic Trade and Investment Partnership, as well as expanded access in China. Expanded trade will help to drive higher commodity prices, additional farm income and agribusiness jobs that ultimately generate more cash flow in rural economies and support local businesses on main street.

“Thanks to its ability to remain competitive through thick and thin, American agriculture continues to enjoy some of the strongest years in our nation’s history, supporting and creating good-paying American jobs for millions, and positioning the United States as a reliable supplier of high-quality goods for domestic and foreign markets alike. Overall, today’s projections provide a snapshot of a rural America that continues to remain innovative, stable and resilient in the aftermath of the worst animal disease outbreak in our nation’s history and as the western United States unloosens itself from the grip of historic drought. For example, today’s projections indicate a rise in specialty crop receipts in 2015, while final farm income for 2014 was revised upward by $1.9 billion since August and $13.5 billion since February. Today’s estimates also indicate that new 2014 Farm Bill safety net programs are working as intended and helping producers protect their operations from changes in the marketplace.

“Since 2009, USDA, under President Obama, has made historic investments in rural America and American agriculture. Two-thirds of all rural counties gained jobs over the past year and the American economy overall has created 8 million jobs over the past 36 months, the fastest pace since 2000. USDA and the Obama Administration will continue to stand with America’s farming families, small businesses and rural communities as they build a brighter future for our country on the land that they love.”

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