The U.S. Department of Agriculture (USDA) has offered a bit of good news for the nation’s agricultural outlook, modestly increasing its estimate of U.S. net farm income in 2019. Based on data released in November, the USDA now projects net farm income at $92.5 billion in 2019. Accounting for inflation, that figure represents an increase of more than 8 percent over 2018.
- USDA increased its 2019 estimate of farm income to $92.5 billion
- Payments from the Market Facilitation Program (MFP) helped support the increase in net farm income
- Cash receipts for dairy and vegetables improved from 2018, while beef, fruits and nuts and soybean receipts declined
- Production expenses have largely stabilized this year, which has also helped support net farm income
In November, the USDA estimated 2019 U.S. net farm income at $92.5 billion. This estimate represented a modest 5 percent increase over its previous estimate of $88 billion. If the current estimate proves accurate, U.S. net farm income will have increased 8 percent from 2018. Moreover, the current 2019 net farm income estimate inches slightly closer to the past decade’s average.The positive news is tempered somewhat by broader economic trends in agriculture. Despite the improvement in U.S net farm income, total cash receipts from the sale of crops and livestock were projected to be mostly flat from 2018, while farm expenditures only slightly decreased. Government transactions, primarily via the Market Facilitation Program, were the key driver to the improvement in U.S. net farm income. To highlight the positive impact of MFP and similar programs, the chart below factors government payments out of the U.S net farm income equation. In this calculation, estimated 2019 farm income is noticeably lower than in 2018, and lags the 2010 – 2019 average, providing some support for the positive effect of MFP payments on net farm income.
Total cash receipts from the sale of commodities declined about 1 percent from 2018. Crop cash receipts dipped very slightly as declines in receipts from soybeans, wheat and cotton were nearly offset by increases in cash receipts from corn, vegetables, melons and hay. Notably, soybean cash receipts are expected to decline 7 percent, or roughly $2.5 billion. The USDA noted that the decline in soybean receipts is a result of both lower prices and a lower quantity sold. When excluding soybean receipts, all other crop receipts increased about 0.53 percent.
Cash receipts from the sale of livestock and animal products also declined slightly. In 2019, declines in cattle and poultry cash receipts outweighed gains from dairy and hog receipts which increased 11 and 9 percent over the prior year. Notably, receipts from poultry and eggs declined 15 percent, or more than $7 billion, from 2018. Meanwhile, gains in the dairy industry were reflective of stronger prices in the second half of 2019, while dairy cash receipts reached the highest level since 2014.
As cash receipts from crops and livestock declined, producers have adjusted their expenditures. In fact, inflation-adjusted expenditures (including expenses associated with operator dwellings) are forecast to decline $5.5 billion, or about 1.6 percent, from the previous year. What is driving the trend toward lower expenditures? The declines were broad based, as everything from seed costs, interest, fuel and rent declined. Feed and labor were the only major categories of expenditures that increased from 2018 levels.
For the fifth consecutive year, total input expenses dropped in 2019. In real terms, farm expenditures have fallen nearly $80 billion since the peak in 2014. The trend is likely driven by some pencil-sharpening and belt-tightening in agriculture as producers and input providers respond to a tighter economic situation.
The USDA also updated their farm sector financial estimates. These financial estimates typically serve as a temperature gauge for the sector. The USDA estimates that total sector debt increased about 1.5 percent in 2019. Farm sector assets increased, though at a slightly slower pace. While solvency measures such as debt-to-asset ratios slightly declined, these measures remain well within historical levels. Liquidity measures such as debt-to-income improved somewhat as farm income increased more than debt.
Overall, net farm income appears to have made a modest improvement in 2019, edging closer to historical averages from the past decade. Government payments to farmers and the trend toward lower expenditures have helped support farm income, although much work remains to improve cash receipts. 2019 has been a taxing year as many in farm country dealt with a number of weather and natural disaster related issues as well as tough financial decisions. However, the USDA’s upward revision to net farm income is welcome news to close the year.
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