Power Hour: Farm Income to Drop 26.6% This Year

February 20, 2014 08:30 AM
Power Hour: Farm Income to Drop 26.6% This Year

USDA’s annual forecast for farm income shows it dropping to $95.8 in 2014, a precipitous 26.6% decline from 2013, and the lowest level since 2010, underscoring the need for farmers to carefully cut expenses.

If there’s a silver lining in the forecast, USDA predicts that farm income this year will still exceed the average for the previous 10 years. (Read the full USDA farm income forecast.)

The decline will be driven by a change in the value of crop inventories and reduced government farm payments. The recently passed farm bill ended a program of roughly $4 billion in direct payments to farmers.

Net cash income, which reflects the sale of more than $6 billion in carryover stocks from 2013, will decline only 22% to $101.9 billion.

Crop receipts are expected to decrease more than 12% in 2014, led by a projected $11-billion decline in corn receipts and a $6-billion decline in soybean receipts.

The livestock industry is a bright spot in the forecast. USDA projects that livestock receipts will increase 0.7% in 2014 largely due to 7% increase in dairy receipts that reflects higher milk prices.

A big hit will come from the reduction in government support. "The elimination of direct payments under the Agricultural Act of 2014 and uncertainty regarding enrollment and payments during 2014 result in a projected 45-percent decline in government payments," according to the report.

USDA expects farmers to respond to lower grain prices by slashing expenses. It forecasts a decline of $3.9 billion in 2014. If it happens, it would be only the second time expenses declined in the last 10 years, though the 2009 decline, at $11 billion, was much larger.

Meanwhile, several factors will conspire to slow the rate of growth in farm assets, debt and equity. They include lower net income, higher borrowing costs and moderation in growth of farmland values.

Even so, USDA expects the value of farm assets is expected to rise 2.4% in 2014, while farm sector debt increases 2.3%.

"This represents a noticeable reduction in the average annual growth in each of these measures compared with the last 10 years," the report says. "Nonetheless, the historically low levels of debt relative to assets and equity reaffirm the sector’s strong financial position."

Despite the 26.6% drop in income, USDA projects median total farm household income to fall by $2,534 to $68,132 in 2014, according to a separate report.

USDA notes that given its broad definition of a farm, many farms are not profitable even in the best years for farm income.

Most farm households, USDA notes, earn all of their income from off-farm sources. The Department projects that median off-farm income will increase by 3.5% in 2014, to $62,585.

Because they are based on unique distributions, USDA says that median total income will generally not equal the sum of median off-farm and median farm income.

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