US 2013 Net Cash Farm Income Forecast at $120.8 Bil., Down 10% from 2012

August 27, 2013 07:26 AM

via a special arrangement with Informa Economics, Inc.

Net farm income to be second highest since 1973; net cash income to top $100 bil. for fourth time since 1973

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.

Net cash income—which measures the difference between cash expenses and the combination of commodities sold during the calendar year plus other sources of farm income—is forecast at $120.8 billion, down just over 10 percent from 2012 while net farm income is forecast at $120.6 billion, up 6 percent from 2012, according to updated forecasts for US farm income from USDA’s Economic Research Service (ERS)

After adjusting for inflation, 2013’s net farm income is expected to be the second highest since 1973 and behind only 2011. A return to trend yields would lead to record crop production levels and result in substantial year-end crop inventories.

Net cash farm income for 2013, when adjusted for inflation, would be the fourth time net cash income has exceeded $100 billion since 1973. Unlike net farm income, net cash income does not account for capital consumption, change in inventories, and nonmoney income. Substantial year-end crop inventories buoying the 2013 net farm income forecast are not reflected in net cash income.

Farm Income 1

Farm expenses are seen rising $13.1 billion in 2013, reaching $354.2 billion, a continuation of large year-to-year movements that have taken place since 2002. In both nominal and inflation-adjusted dollars, 2013 production expenses are expected to be the highest on record. Rent, labor, and feed are the expense items expected to increase the most in 2013.

Farm sector assets, debt, and equity are all forecast to increase in 2013. As in the last several years, increases in farm asset value are expected to exceed increases in farm debt, with farm real estate the main driving force. Confirming the strength of the farm sector's solvency, both the debt-to-asset ratio and debt-to-equity ratio are expected to reach historic lows.

Farm Income 2

The value of livestock production is expected to increase 5.2 percent in 2013, with receipts increasing nearly 4.9 percent. The projected gains result mostly from expectations of higher prices. Crop receipts are forecast to decline by $12.4 billion (5.5 percent) in 2013, which would be the first decline since 2009. Nonetheless, the value of crop production is expected to rise 2.7 percent in 2013, with increases boosting anticipated year-end crop inventories.

Increases in farm asset values are expected to continue to exceed increases in farm debt, leading to expectations of another new record high for farm equity. Farm financial risk indicators are expected to continue at historically low levels.

Debt-to-asset, debt-to-equity ratios ----------------

The farm sector's debt-to-asset ratio is expected to decline from an estimated 10.7 percent at the end of 2012 to 10.2 percent by the end of 2013. The debt-to-equity ratio is expected to decline from 12.0 percent in 2012 to 11.4 percent in 2013. If realized, these changes would result in new historic lows for both measures, confirming the strength of the farm sector's solvency.

Perspective. "With such historically low levels of debt relative to assets and equity, the sector is better insulated from the risks associated with commodity production (such as adverse weather), changing macroeconomic conditions in the US and world economies, and any fluctuations in farm asset values that may occur due to changing demand for agricultural assets," ERS noted.

Farm Income 3

Changes from February’s forecast ----------

USDA’s August forecast for 2013 shows a decline of $7.6 billion (6.3 percent) in net farm income from its February forecast. Underlying the adjustment are expectations of a drop in the value of crop production; an increase in payments to stakeholders and for manufactured inputs; and a decline in machine hire and custom work revenues. Offsetting these downward revisions were expectations of an increase in the value of livestock production and other farm income, combined with declines in inputs purchased from the farm sector, particularly feed.

The largest change in dollar-value terms since February’s forecast was a $9.5-billion downward revision in feed crop cash receipts, mostly for corn (down $8.1 billion). Forecast receipts from miscellaneous livestock were lowered almost $1 billion. The value of annual change in crop inventories was reduced almost $5 billion from February’s expectations. Machine hire and custom work revenues were lowered almost 13 percent. On the expenditure side, payments to stakeholders as well as forecast expenditures on pesticides, fertilizer/lime, purchased livestock/poultry, and seed are higher than February’s forecast.

Cash receipt forecasts were revised upward for vegetables and melons, broilers, all other crops, eggs, and milk.

The 2013 forecast for other farm income was raised over $1 billion, driven mostly by payment of 2012 crop insurance indemnities slipping into 2013. Forecast feed purchases were lowered almost $6.5 billion from February’s forecast. Marketing, storage, transportation, and miscellaneous expenditures were revised downward by over $2 billion from February’s forecast.

While there have been revisions to the forecast for some major components of farm sector assets since February, the largest factor, real estate, is still expected to increase by 7.5 percent. The value of livestock inventories is forecast to decline further than in February, while the value of crop inventories is not anticipated to increase by as much as expected in February. Financial assets are forecast to decline by 7 percent, compared to an expected 3.2-percent increase in February.

Farm debt is forecast to increase by less than was expected in February (2.7 percent compared with 3.2 percent). The largest changes were within the components of farm debt. Farm real estate debt is now forecast to increase by 3.1 percent, while the February forecast was for a 2.1-percent decline. Nonreal estate debt is now forecast to increase 2.1 percent for 2013, which is much lower than the 10-percent increase forecast in February.

Comments: Despite the 2012 drought, the farm sector remains in solid financial condition with readings on farm debt at their lowest level on record. As USDA correctly notes, that means the farm sector remains in very good shape to make it through any shifts due to commodity prices and macroeconomic factors and shifts in US and global demand. However, the continued rise in expenses at some point could become a point of concern.



NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.






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