The Big Thud You Hear is Farm Income Dropping 36%

September 26, 2015 10:03 AM
 
The Big Thud You Hear is Farm Income Dropping 36%

For producers with strong balance sheets, the downturn means plenty of opportunities 

Fifth-generation Indiana crop farmer Chris Hudson wasn’t surprised when he heard the recent news from USDA: This year’s farm income is expected to drop by 36% from 2014’s level. That’s the lowest in nine years and the biggest annual drop since 1983. The projected $58.3 billion is significantly lower than USDA experts projected just in February and a whopping 53% beneath where net farm income stood when it hit a record high just two years ago. 

As luck would have it—Hudson is too modest to chalk it all up to smart planning—he and his family have recently gone through a round of belt tightening. They shook up longtime relationships with some of their dealers to trim costs for seed and other inputs, a cost-control tactic many farm-management consultants encourage. Hudson says the savings he achieved that way is the primary reason he’s looking at the price slump with a lot more optimism than one might expect.

“I’m not thinking doom and gloom. I’m thinking about the opportunities,” says Hudson, who farms with this parents and wife, Ashley, near Crawfordsville, Ind. Opportunities as simple as getting good deals on used farm equipment and negotiating even better prices on inputs.

However, there’s enough doom and gloom to go around. USDA’s late-August report predicts cash receipts from crops to fall by more than 6%, led by a projected $7.1 billion drop in corn, a $3.4 billion decline in soybeans and a $1.6 billion drop in wheat compared with 2014. Livestock receipts are expected to edge downward by $19.4 billion, or about 9%, due to lower milk and hog prices. 

While producers will see less money in the till, they’ll pay slightly less in expenses. USDA expects production costs to slump ever so slightly by $1.5 billion, or less than 0.5%—the first fall in production costs since 2009, driven by soft energy and feed prices. 

Not surprisingly, government payments are projected to rise 16% to $11.4 billion. 
Farm adviser and Farm Journal columnist Moe Russell, who has been consulting with producers for more than 40 years, says the upcoming downturn will separate the weak from the strong, something that is as American as apple pie.

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“In our free enterprise system, it’s OK to fail,” Russell says. “But it’s also OK to be very, very successful. The farmers who haven’t been able to manage their businesses well are going to be under some real stress. But the ones who have been able to bulletproof their balance sheets in the good times will have abounding opportunities when prices go south.” 

Some of those opportunities will involve renegotiating cash rents, snapping up the assets of producers who get shaken out of the market and getting good deals on big-ticket purchases. Or, as Greg Peterson, also known as Machinery Pete, says, leases.

“It’s a tremendous time to be aggressive,” Peterson says, “either on the buying side or leasing. 
“I see guys shelve super-late model equipment, take out a lease for equipment under warranty, then in a few years, they’ll have a five-year-old combine with very few hours on it,” he notes. “It’s a great time to look at your options and see how aggressive you can be.” 

 

Just a Few Sunny Spots In a Cloudy Picture

U.S. agriculture production is expected to fall for a second time in as many years, driven by lower crop and livestock receipts. But the news isn’t all bad: Production costs are expected to fall slightly and government payments to rise 16%.

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SOURCE: USDA, Economic Research Service, Farm Income and Wealth Statistics
value_of_production_livestock
SOURCE: USDA, Economic Research Service, Farm Income and Wealth Statistics
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