USDA Forecasts 10% Rise in Net Farm Income

Posted on 03/07/2019 8:38 AM

Net farm income is forecast to increase $6.3 billion (10.0%) from 2018 to $69.4 billion in 2019, reports USDA's Economic Research Service (ERS). The gain follows a $12.0 billion (16.0%) decrease in 2018. Net cash farm income is forecast to increase $4.3 billion (4.7%) to $95.7 billion. In inflation-adjusted 2019 dollars, net farm income is forecast to increase $5.2 billion (8.1%) and net cash farm income is forecast to increase $2.7 billion (2.9%). If realized, inflation-adjusted net farm income and net cash farm income would remain below their historical averages of $90.0 billion and $108.0 billion, respectively, across 2000-17.

Net farm income over time



ERS economists say direct government farm payments—which include federal farm program payments paid directly to farmers and ranchers but exclude USDA loans and insurance indemnity payments made by the Federal Crop Insurance Corporation (FCIC)—are forecast to decrease $2.3 billion (16.8%) to $11.5 billion in 2019, following lower payments from miscellaneous programs (including the Market Facilitation Program) and the Agriculture Risk Coverage and Price Loss Coverage programs.

Total production expenses, including expenses associated with operator dwellings, are forecast to increase $2.2 billion (0.6%) in 2019 to $372.0 billion. Hired labor expenses are forecast to increase $2.1 billion (6.6%). Feed and interest expenses are also expected to increase while fuel, fertilizer, and seed expenses are expected to decline. When adjusted for inflation, total production expenses are forecast to decrease $4.2 billion (1.1%).

All nine resource regions (see map below are expected to see average net cash farm income (NCFI) increase in 2019 by 5% or more. Higher livestock receipts for 2019 are expected to contribute to a forecast 17.9% increase in average NCFI for the Eastern Uplands to $11,200 per farm. Farm businesses in the Fruitful Rim are forecast to see the largest dollar increase in average NCFI at $14,000 per farm (11.6%) to $134,700, largely due to higher crop receipts.

Net farm income by region



At a forecast $2.56 trillion, the value of farm real estate assets (land and its attachments) accounts for over 83 percent of 2019 farm sector assets. ERs anticipates farm real estate value will increase 1.8 percent in 2019 in nominal terms. However, when adjusted for inflation (see chart below), the value of farm real estate assets is expected to rise just 0.1 percent.

The value of nonreal estate farm assets is expected to decline 0.1% in 2019 (or 1.8% in inflation-adjusted values). The decline in nonreal estate assets reflects a relatively large decline ($9.6 billion or 19.5% in nominal terms) in crop inventories, which more than offsets increases in the other asset categories.

Farm real estate debt is expected to reach $263.7 billion in 2019, a 5.1% annual increase in nominal terms and a 3.3% rise in inflation-adjusted dollars. Farm real estate debt accounts for 61.8% of total farm debt. Farm nonreal estate debt is expected to increase 1.9% in nominal terms to $163.0 billion in 2019.

As farm sector debt is forecast to continue to increase in 2019 and outpace growth in farm assets, the farm sector’s risk of insolvency is forecast to be at its highest level since 2002, notes ERs Likewise, liquidity measures that rely solely on the balance sheet are worsening, reflecting the same dynamic of debt growth outpacing asset growth. However, liquidity measures that refer to the income statement are flat to better, reflecting the improved value of production and profitability outlook for 2019, ERs states.

The farm sector debt-to-asset ratio and debt-to-equity ratios are expected to move upward, while the equity-to-asset ratio is expected to decrease in 2019. The farm sector's debt-to-asset ratio is forecast well below levels during the farm crisis of the 1980s.

The "current ratio," which is current assets divided by current debt, is forecast to decline from 1.43 in 2018 to 1.31 in 2019. Working capital, which is current assets less current debts, is forecast at $38.0 billion in 2019, a 24.7% decline from 2018. The 2019 debt service ratio, which measures the share of the sector's value of production required to service farm debt payments, is forecast to remain unchanged at 0.28 in 2019. The times interest earned ratio, which measures the farm sector's ability to meet interest payments out of 2019 net farm income, is forecast to improve, increasing from 3.98 in 2018 to 4.18 in 2019.

Debt-to-equity ratio



Farm sector profitability measures are expected to increase in 2019. Total rate of return on farm assets is expected to be 2.78% in 2019, up from 2.43% in 2018. Total return on farm equity is expected to be 2.4% in 2019, up from 1.99% in 2018. Total rates of return are the sum of rates of return on current income plus returns on real capital gains.



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