Farm Income Likely to Drop in 2016

USDA recently projected 2016 Net Farm Income (NFI) would be near $54.8 billion or 2.8% less than 2015. This would be the third consecutive year of income decline. this follows 2013’s record income following a year of widespread US drought. High livestock prices and hog and poultry disease problems have helped hold up NFI since 2013 but the production problems are easing. 2016 Farm Bill Price Loss Contract (PLC) payments are projected to increase 31% to $13.9 billion compared to 2015. That means just over 25% of the 2016 NFI will come from government payments. 2015 Farm Bill program payments accounted for 18.8% of NFI.

Agricultural economists at Texas A&M and the University of Missouri-Columbia have pointed to a couple of financial ratios that indicate very strong balance sheets for farms and ranches. There has been an uptick in the financial stress of farm and ranches but are still at very low rates. Factors pointing to prolonged risk though are commodity over-supplies in nearly every sector. Ethanol growth has ended unless a new blend mandate is approved and Chinese economic growth to just 4% or so, but that is nearly 3X the current US growth however. This lack of growth reduces prospects for increased consumption of agricultural commodities along with higher prices. So over the next few years, absent weather or world political problems, supplies of these commodities will likely decline to more nearly align with demand. Poultry and dairy are likely to make supply adjustments quickly. But grains, oilseeds and beef production are burdened by increased supplies during the next couple of years.

USDA did point out that expenses have declined and are likely to decline for the second consecutive year since 1986-7. “A drop in overall production expenses is forecast for 2016, cushioning the decline in cash receipts. Notably, expenses for inputs that typically are produced by the farm sector itself, including feed, as well as livestock/poultry purchases, are expected down. Also, expenses for fuels and oils are forecast down by 14.5 percent in 2016.  If realized, the expenses across each of these three categories will have fallen for 3 straight years. In contrast, hired labor costs and interest expenses are forecast to increase by $1.5 billion (5 percent) and $1.3 billion (6.8 percent), respectively, over 2015.” Source: USDA

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