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Higher production costs depress net farm income

While overall cash receipts are expected to remain stable, increasing production costs are forecast to knock the wind out of net farm income in 2018.
Carol Ryan Dumas

Capital Press

Published on September 3, 2018 3:11PM

USDA economists predict a 13 percent decrease in the net income of farms this year.

Capital Press File

USDA economists predict a 13 percent decrease in the net income of farms this year.

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After a welcome increase in 2017, net farm income is expected to drop 13 percent — $9.8 billion nationwide — in 2018 to $65.7 billion, the USDA forecasts.

Adjusted for inflation, net farm income is forecast to drop 14.8 percent to slightly above its 2016 level — which was the lowest level since 2002, analysts with USDA Economic Research Service reported.

While overall farm cash receipts are forecast to remain stable at $374 billion, there are winners and losers in the mix.

In the big picture, the analysts expect increases in sales volumes to offset decreases in prices.

The forecast $5 billion effect of lower prices — $1 billion from crops and $4 billion from animals and animal products — should be partially offset by a $4 billion higher volume of sales, mostly from animals and animal products.

Milk receipts are expected to decrease by $2.8 billion, or 7.4 percent, reflecting an expected price decline that more than offsets the higher volume of milk sold.

Cash receipts for cattle and calves are expected to decrease $800 million, or 1.1 percent, reflecting a price decline that is weightier than increased quantities sold.

Hog cash receipts are expected to decline $1.6 billion, or 7.7 percent, reflecting expected lower prices.

On a brighter note, broiler chicken receipts are expected to rise $3 billion, or 10 percent, on larger quantities and higher prices. Chicken egg receipts are forecast for a similar scenario, rising $3 billion, or 39.5 percent.

On the crop side, wheat receipts are expected to increase more than $500 million, or 6.3 percent, on a decline in volume and increase in prices.

Corn receipts, however, are expected to be down $800 million, or 1.8 percent, on a decline in the quantity sold.

Vegetable and melon receipts are expected to fall $700 million, or 3.8 percent, despite expected increases in dry bean and potato receipts.

Receipts for fruits and nuts are expected to decline almost $700 million, or 2.2 percent.

On the cost side, production expenses are forecast to increase $11.8 billion, or 3.3 percent, to $365.9 billion.

Feed costs are expected to rise 4.8 percent, the first increase since 2014. Fuel and oil costs are expected to increase 17.8 percent on top of a 5.9 percent increase in 2017.

Hired labor costs, which have been on an upward trend since 2015, are expected to rise 5.1 percent.

Interest expenses are expected to increase for the fifth consecutive year, rising 17.3 percent.

Fertilizer costs, however, are forecast to decline $21 billion, or 4.6 percent, continuing a decline that started in 2012.

In nominal terms, overall farm-sector equity is expected to increase 0.8 percent. But in inflation-adjusted terms, it’s forecast to drop 1.2 percent.

Farm-sector assets are expected to increase 1.2 percent in nominal terms, largely due to a 1.8 percent increase in farm real estate assets. Adjusted for inflation, however, farm-sector assets are forecast to decline by 0.9 percent and farm real estate assets are forecast to drop 0.3 percent.

Farm-sector debt is expected to rise 3.5 percent, with real estate debt forecast to rise 4.4 percent. Debt-to-asset levels are forecast to rise again, continuing an upward trend since 2012.

The total farm-sector return on assets is expected to be 2.32 percent, the fourth lowest level since 1990 and well below the 1990-2018 average of 7.12 percent. Return on assets is calculated by dividing farms’ total earnings by their total assets.


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