USDA's Economic Research Service (ERS) today said it expects net farm income to decline 26.6% from 2013 to $95.8 billion in 2014. But while this is a hefty year-over-year decline, net farm income is still $8 billion above the previous 10-year average. Also of note, after adjusting for inflation, 2013 net farm income at $130.5 billion is expected to be the highest since 1973. For comparison's sake, 2014's net farm income is expected to be the seventh highest.
ERS forecasts net cash income at $101.9 billion in 2014, which would be 22% below 2013. ERS notes that the projected decline in net cash income is less than that for net farm income "primarily because it reflects the sale of more than $6 billion in carryover stocks from 2013. Net farm income reflects only the earnings from production that occurred in the current year."
ERS highlights the following from its report:
- The projected $3.9-billion (1.1%) decrease in total production expenses in 2014 would be only the second time expenses declined in the last 10 years.
- Livestock receipts are expected to increase 0.7% in 2014, largely due to a 7% increase in dairy receipts.
- Crop receipts are expected to decrease more than 12% in 2014, with an almost $11-billion decline in corn receipts and a decline in soybean receipts of more than $6 billion.
- The elimination of direct payments under the Agricultural Act of 2014 and uncertainty regarding enrollment and payments during calendar-year 2014 result in a projected 45% decline in government payments.
- Farm equity is projected to reach another nominal record, despite the substantial slowdown in asset growth and the expectation of higher debt levels.
- Farm financial risk indicators are expected to continue at historically low levels.
Crop prices are expected to decline substantially in 2014, ERS notes. The value of crop production is expected to fall back to pre-2011 levels, in fact. Therefore, this is also expected to draw down both crop cash receipts and the value of crop inventory adjustment.
ERS elaborates, "Declines in cash receipts are expected across almost all major crop categories: food grain, feed, oil, fruits/tree nuts, and vegetables/melons. In particular large anticipated declines in the 2014 price of corn are impacting farm operator decisions regarding a number of their major crops. Cash receipts for livestock and products is forecast to increase slightly, reflecting higher milk prices. In addition, the value of farm animal inventories is expected to increase."
Major U.S. corn production increases are anticipated as farm operators continue to improve from 2012 drought. "Both sales receipts and value of inventory change for corn in 2014 are expected to decline significantly, reflecting a large forecast decline in the average price of corn for grain," ERS explains.
ERS also notes that the world corn market has become more competitive and that corn for ethanol use is expected to rise. Hay receipts are also expected to rise amid increased production, though lower hay prices are expected to result in a small decline in hay's overall value of production in 2014.
Wheat's annual price is expected to decline notably in 2014, due to a large world crop and significant declines in competing feed grain (especially corn) prices, which reduces domestic demand for feed wheat. "Wheat receipts and value of production are expected to decline significantly in calendar-year 2014," ERS adds.
An expected 19.3% decline in annual soybean prices are expected to significantly lower soybean receipts and value of production. Also of note, ERS says, "The soybean-to-corn calendar-year price ratio is predicted to rise from 2.4 in 2013 to 2.7 in 2014." Soymeal prices are expected to decline by about 15% for calendar year 2014, according to ERS.
Cotton farmers will continue to face a world market dominated by large stocks since world production has topped use the last several years, according to ERS. Production of a cheaper polyester (a cotton substitute) has pressured cotton prices, and marketing decisions by China regarding its large stocks have added price risk for 2014. Cotton producers are expected to significantly increase production in 2014, "increasing receipts and inventories for both cotton seed and lint, despite anticipated price declines in both," ERS explains.
ERS notes that increased dairy receipts are expected to more than offset forecast declines in hog and egg receipts in 2014. Pork production is expected to rise in 2014 due to higher farrowing intentions the first half of the year and expected increases in farrowing intentions. But ERS notes the porcine epidemic diarrhea virus remains a source of uncertainty.
Receipts for cattle and receipts for calves are expected to remain stable in 2014 as price gains offset a decline in beef and veal production.
Production expenses are expected to drop for the first time since 2009, according to ERS. However, ERS's projection for a $3.9 billion decline from the revised 2013 forecast is well below 2009's $11-billion drop. "If realized, this would interrupt the rapid upward movement in expenses that has occurred since 2002. Between 2002 and their peak in 2013, nominal production expenses increased 84 percent," ERS details.
"The principal reason for the slowdown in 2014 is a decline in input prices, as exemplified by the Production Items, Interest, Taxes, and Wage Rates (PITW) index, which is forecast to decline 0.5% during 2014. Despite the decrease, total production expenses are expected to constitute 78% of gross farm income in 2014, up from 73% in 2013, indicating a return to much tighter margins," ERS elaborates.
ERS projects government payments paid directly to producers will total $6.12 billion in 2014, which would be down 45.4% from 2013. "Under the provisions of the Agricultural Act of 2014, cotton producers are eligible to receive fixed transition payments for crop years 2014 and 2015 as they transition into coverage authorized by the new Stacked Income Protection Plan (STAX)," ERS explains, which are expected to total $577 million in 2014.
"Based on 2013 crop-year revenue losses mostly for corn, farmers are currently expected to receive $190 million in Average Crop Revenue Election (ACRE) revenue payments in 2014. Producers will receive the first payments from the newly authorized Price Loss Coverage Program and Average Risk Coverage Program in calendar-year 2015," ERS explains.
ERS continues, "n 2014, the Tobacco Transition Payment Program is expected to make its final payments of $641 million to tobacco producers and quota holders, after which the program expires.
Supplemental and ad hoc disaster assistance payments are forecast to be $1.02 billion in 2014, a decrease of 47.6% from 2013 levels. Under the provisions of the 2014 Agricultural Act, livestock producers are entitled to receive payments under the Livestock Forage Program and Livestock Indemnity Program retroactive to fiscal-year 2012. Payments under these two programs are expected to amount to a combined $810 million in 2014 and are for multiple fiscal years, mostly covering losses (feed expenses) incurred during the 2012 drought. Payments under the Noninsured Disaster Assistance Program (NAP) to livestock and specialty crop producers for which no Federal insurance programs are available are forecast to be $150 million in 2014."
Get more details and the full report here.