Farm sector profits expected to increase in 2019, ERS says

Net farm income, a broad measure of profits, is forecast to increase $6.3 billion (10 percent) from 2018 levels to $69.4 billion in 2019. This follows a $12 billion (16 percent) decline forecast for 2018. In inflation-adjusted 2019 dollars, net farm income is forecast to increase $5.2 billion (8.1 percent) from 2018 after the forecast decrease of $13.9 billion (17.8 percent) in 2018, according to the U.S. Department of Agriculture’s Economic Research Service March 6.

However, those figures—if realized—would put inflation-adjusted net farm income in 2019 at 49 percent below its highest level of $136.1 billion in 2013 and below its historical average across 2000-17 ($90 billion).

Net cash farm income is forecast to increase $4.3 billion (4.7 percent) to $95.7 billion. Inflation-adjusted net cash farm income is forecast to increase $2.7 billion (2.9 percent) from 2018, which nonetheless would be the second lowest real-dollar level since 2009.

This just might not be an indicator of a reversal of change in recent downward trends.

“We’re starting to see a new average come out here, especially if you take out the really unusually high years around 2013 and 2014, then the value we’re forecasting for 2019 really isn’t that far off from what we’ve seen in previous years,” Carrie Litkowski, a senior ERS economist, told reporters via webinar.

“Once we can get away from discussing what happened in those peak years of farm income, our focus is going to be shifting away from that and start looking at income more relative to the years after the large uptick in net farm income.”

Net cash farm income encompasses cash receipts from farming as well as farm-related income, including government payments, minus cash expenses. Net farm income is the more comprehensive measure of the two, in that it incorporates noncash items, including changes in inventories, economic depreciation, and gross imputed rental income of operator dwellings.

Cash receipts for all commodities are forecast to increase $8.6 billion (2.3 percent) to $381.5 billion in 2019 in nominal terms, the ERS report said. 

Animal products up

Total animal and animal product receipts are expected to increase $4.6 billion (2.6 percent) following expected increases in milk and cattle and calf receipts. Total crop receipts are expected to increase $4.0 billion (2 percent) from 2018 forecast levels following expected increases in corn and fruit and nuts receipts.

Direct government farm payments are forecast to decrease $2.3 billion (16.8 percent) to $11.5 billion in 2019, with most of the decrease due to lower anticipated payments for Agriculture Risk Coverage, Price Loss Coverage and miscellaneous programs (which include Market Facilitation Program payments to assist farmers in response to trade disruptions).

Total production expenses (including operator dwelling expenses) are forecast to be largely unchanged from 2018 forecast levels, at $372 billion in 2019, with increases in spending on hired labor, feed, and interest mostly offset by dropping energy prices. When adjusted for inflation, total production expenses are forecast to decrease $4.2 billion (1.1 percent).

Farm business average net cash farm income is forecast to increase $6,400 (9.3 percent) to $75,000 in 2019. Although this is the first increase since 2014, it is also the third lowest average income recorded since the series began in 2010, the ERS report said.

Increase at 5 percent

Every resource region of the country is forecast to see farm business average net cash farm income increase by 5 percent or more. All categories of farm businesses except wheat and hog farm businesses are expected to see average net farm income rise in 2019.

Farm sector equity is forecast up by $28.8 billion (1.1 percent) in nominal terms to $2.65 trillion in 2019. Farm assets are forecast to increase by $44.6 billion (1.5 percent) to $3.1 trillion in 2019, reflecting an anticipated 1.8-percent rise in farm sector real estate value.

However, when adjusted for inflation, farm sector equity and assets are forecast to decline $16.3 billion (0.6 percent) and $7.6 billion (0.2 percent), respectively. Farm debt in nominal terms is forecast to increase by $15.8 billion (3.9 percent) to $426.7 billion, led by an expected 5.1-percent rise in real estate debt. The farm sector debt-to-asset ratio is expected to rise from 13.55 percent in 2018 to 13.86 percent in 2019. Working capital, which measures the amount of cash that would be available to fund operating expenses after paying off debt due within 12 months, is forecast to decline almost 25 percent from 2018. 

Median income increase seen

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Median farm household income is forecast to reach $78,987 in 2019. In nominal terms, that income level represents an increase of 3.6 percent from its 2018 level; in inflation-adjusted terms, it is a 1.9-percent increase.

The total median income of U.S. farm households increased steadily over 2010-14, reaching an estimated $81,637 in 2014 in nominal terms. Median farm household income then fell 6 percent in 2015, remained flat through 2018, and is forecast to rise in 2019.

Farm households typically receive income from both farm and off-farm sources. Median farm income earned by farm households is forecast at minus $1,553 in 2018 in nominal terms and is forecast to increase slightly to minus $1,449 in 2019. In recent years, slightly more than half of farm households have had negative farm income and therefore rely on off-farm income to support their well being, the ERS report said.

Median off-farm income is forecast to increase 2.6 percent from $69,366 in 2018 to $71,162 in 2019. (Because farm and off-farm income are not distributed identically for every farm, median total income will generally not equal the sum of median off-farm and median farm income.)

Guarded reaction

In reaction to the report, John Newton, Ph.D., chief economist for the American Farm Bureau Federation, said, “While these projections suggest 2019 could be ‘better’ than 2018 for many farmers, much is up in the air.

Retaliatory tariffs are still in place, and recently both Mexico and the European Union threatened additional tariffs if 232 tariffs on steel and aluminum are not removed, or if auto tariffs are put in place. Additional tariffs would further erode our competitiveness in key agricultural markets and would weigh on farm income—as they did in 2018.

“On the flip side, if markets are fully restored, then demand for U.S.-agricultural products would increase—likely lifting prices and farm income above these early expectations. A supply shock would also have a similar price- and income-boosting effect.

“In addition to trade instability, uncertainty remains as to acreage decisions, the growing season and ultimately the demand for U.S. crop, livestock, fruit, vegetable and other horticultural products.”

The projected net farm income estimate of $69.4 billion is lower than the number in a long-term forecast released by USDA in February, which pegged the number at $77.6 billion, an increase of about $14 billion over 2018.

The March 6 report is based on a more recent supply and demand report that had been delayed due to the government shutdown. The next forecast should be released by ERS in August.

Larry Dreiling can be reached at 785-628-1117 or [email protected].