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Congressional Research Service (CRS)

 

U.S. Farm Income Outlook for 2015

Randy Schnepf, Specialist in Agricultural Policy

February 18, 2015

http://fas.org/sgp/crs/misc/R40152.pdf

[full-text, 34 pages]

 

Summary

According to USDA’s Economic Research Service (ERS), national net farm income—a key

indicator of U.S. farm well-being—is forecast at $73.6 billion in 2015, down 32% from last

year’s level of $108.0 billion. The 2015 forecast would be the lowest since 2009. Net cash income

is projected down 22.4% in 2015 to $89.4 billion.

 

The forecast for lower net farm income and net cash income is primarily a result of the outlook

for lower crop and livestock receipts—down a combined 6.3%. The fall in cash receipts comes

despite record corn and soybean harvests in 2014, as commodity prices plunged in the last half of

2014 and are expected to remain at substantially lower levels compared with the period of 2012-

2014, when prices for many major program crops experienced record or near-record highs.

 

Government payments are projected up by 15% to $12.4 billion, which partially offsets the $25.8

billion decline in crop and livestock receipts. The 2014 farm bill (Agricultural Act of 2014; P.L.

113-79) eliminated direct payments of nearly $5 billion per year and replaced them with a new

suite of price and revenue support programs. In particular, the Price Loss Coverage (PLC)

program replaced the previous Counter-Cyclical Price (CCP) program, but with a set of reference

prices based on substantially higher support levels for most program crops. Agricultural Risk

Coverage (ARC) relies on a five-year moving average price trigger in its payment calculation, but

also adopts the PLC reference price as the minimum guarantee in years when market prices fall

below it. The higher relative support levels of PLC and ARC are expected to trigger payments of

$6.2 billion in 2015.

 

U.S. farm income experienced a golden period during 2011 through 2014, driven largely by

strong commodity prices and agricultural exports. In particular, U.S. agricultural exports have

nearly tripled in value since 2000. However, agricultural exports are forecast lower in 2015, down

6% from last year’s record $152.5 billion—due largely to a strengthening U.S. dollar coupled

with a weakening economic outlook in several major foreign importing countries.

 

Despite the outlook for lower farm income in 2015, farm wealth is projected to remain at record

levels. Farm asset values—which reflect farm investors’ and lenders’ expectations about longterm

profitability of farm sector investments—are projected up slightly (0.4%) in 2015 to $3,005

billion, reflecting a leveling off of the previous year’s strong outlook for the general farm

economy. The outlook for lower commodity prices in 2015 has slowed the previously rapid

growth of farmland values. At the farm-household level, average farm household incomes have

surged ahead of average U.S. household incomes since the late 1990s. In 2013 (the last year for

which comparable data were available), the average farm household income of $118,373 was

about 63% higher than the average U.S. household income of $72,641.

 

The outlook for lower net farm income, coupled with record farm wealth, suggests a mixed

financial picture heading into 2015 for the agricultural sector as a whole, with substantial regional

variation. Declining prices for most major program crops signal tougher times ahead, and

considerable uncertainty surrounds producer participation in the new safety net programs of the

2014 farm bill. Eventual 2015 agricultural economic well-being will hinge greatly on the crop

choices made this spring, growing conditions during the spring and summer, and harvest-time

prices, as well as both domestic and international macroeconomic factors, including economic

growth and consumer demand.

 

Contents

Introduction ...................................................................................................................................... 1

USDA’s 2015 Farm Income Forecast .............................................................................................. 3

Selected Highlights .................................................................................................................... 3

Outlook for U.S. Agriculture for 2015 ...................................................................................... 4

2015 Forecast Cash Receipt Highlights ................................................................................... 12

Crop Receipts .................................................................................................................... 13

Livestock Receipts ............................................................................................................ 14

Government Payments ...................................................................................................... 15

Production Expenses ............................................................................................................... 17

Agricultural Trade Outlook ..................................................................................................... 18

Farm Asset Values and Debt .......................................................................................................... 22

Average Farm Household Income ................................................................................................. 24

On-Farm vs. Off-Farm Income Shares .................................................................................... 24

U.S. Total vs. Farm Household Average Income ..................................................................... 25

 

Figures

Figure 1. Annual U.S. Farm Sector Nominal Income, 1960 to 2015F ............................................. 2

Figure 2. Annual U.S. Farm Sector Inflation-Adjusted Income, 1960 to 2015F ............................. 2

Figure 3. U.S. Corn Stocks-to-Use Share to Rise, Prices to Fall in 2014 ........................................ 6

Figure 4. U.S. Soybean Stocks-to-Use Share to Grow, Prices to Fall in 2014 ................................ 6

Figure 5. Monthly Farm Prices for Corn, Soybeans, and Wheat, Nominal Dollars ........................ 7

Figure 6. Monthly Farm Prices for Corn, Soybeans, and Wheat, Indexed Dollars ......................... 7

Figure 7. Monthly Farm Prices for Cotton and Rice, Nominal Dollars ........................................... 8

Figure 8. Monthly Farm Prices for Cotton and Rice, Indexed Dollars ............................................ 8

Figure 9. Monthly Farm Prices for All-Milk and Cattle (500+ lbs), Nominal Dollars .................... 9

Figure 10. Monthly Farm Prices for All-Milk and Cattle (500+ lbs), Indexed Dollars ................... 9

Figure 11. Monthly Farm Prices for All Hogs and Broilers, Nominal Dollars .............................. 10

Figure 12. Monthly Farm Prices for All Hogs and Broilers, Indexed Dollars ............................... 10

Figure 13. The Milk-to-Feed Margin Fell Sharply in Late 2014 ................................................... 11

Figure 14. The Farm-Price-to-Feed Ratios Turned Unfavorable for Livestock in 2014................ 11

Figure 15. Farm Cash Receipts by Source, 1990 to 2015F ........................................................... 12

Figure 16. Crop Cash Receipts by Source, 2007 to 2015F ............................................................ 13

Figure 17. U.S. Livestock Product Cash Receipts by Source, 2007 to 2015F ............................... 14

Figure 18. U.S. Government Farm Support, Direct Outlays, 1997 to 2015F ................................ 15

Figure 19. Farm Production Expenses by Source, 2007 to 2015F ................................................. 17

Figure 20. U.S. Average Farm Land Cash Rental Rates Since 1999 ............................................. 18

Figure 21. U.S. Agricultural Trade Since 1970 .............................................................................. 20

Figure 22. U.S. Agricultural Exports Have Surged Higher Since 2006, Driven by China, NAFTA Partners (Canada and Mexico), and Developing Countries ................... 20

Figure 23. U.S. Agricultural Trade: Bulk vs. High-Value Shares .................................................. 21

Figure 24. U.S. Agricultural Export Value as Share of Gross Cash Income .................................. 21

Figure 25. U.S. Average Farm Land Values, 1985 to 2014F ......................................................... 23

Figure 26. Real Estate Assets Comprise 81% of Total Farm Sector Assets in 2015 ...................... 23

Figure 27. U.S. Farm Debt-to-Asset Ratio Since 1960 .................................................................. 24

Figure 28. U.S. Average Farm Household Income, by Source, Since 1960 .................................. 25

Figure 29. U.S. Farm Household Incomes Have Surged Well Above Average Household Income Since 1996 ................................. 26

Figure 30. U.S. Farm vs. Average Household Incomes Expressed as a Ratio ............................... 26

 

Tables

Table 1. Annual U.S. Farm Income Since 2008 ............................................................................. 27

Table 2. Average Annual Income per U.S. Household, Farm Versus All, 2008-2015F ................. 28

Table 3. Average Annual Farm Sector Debt-to-Asset Ratio, 2008-2015F ..................................... 28

Table 4. U.S. Prices and Support Rates for Selected Farm Commodities Since 2009/10

Marketing Year ........................................................................................................................... 29

Contacts

Author Contact Information........................................................................................................... 30

 

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