Farm Sector Profitability Expected To Weaken in 2015

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Farm Sector Profitability Expected To Weaken in 2015

Net farm income is forecast to be $73.6 billion in 2015, down nearly 32 percent from 2014’s forecast of $108 billion. The 2015 forecast would be the lowest since 2009. Net cash income is forecast at $89.4 billion, down 22 percent from the 2014 forecast. Net cash income is projected to decline less than net farm income primarily because it includes the sale of carryover stocks from 2014. Net farm income reflects only the earnings from production that occurred in the current calendar year.


  • Both net cash and net farm income are forecast to decline for the second consecutive year after reaching historic highs during 2012-13. Net cash income is expected to fall by 22.4 percent ($25.8 billion) from the 2014 forecast and net farm income by 31.8 percent ($34.4 billion).
  • Crop receipts are expected to decrease by nearly 8 percent ($15.6 billion) in 2015, led by a $6.7-billion decline in corn receipts, a $3.4-billion reduction in fruit/nut receipts, and a $2.2-billion drop in oil crop receipts.
  • Livestock receipts are expected to fall by nearly 5 percent ($10.1 billion) in 2015, due to a 22.3-percent drop in dairy and a 13.8-percent decline in hog receipts. Cattle receipts are anticipated to reach a new record high in 2015.
  • Despite lower energy and feed prices, total production expenses are forecast to be up by about 1 percent ($2.5 billion) in 2015. Livestock purchases and labor exhibited the largest increases among expense categories.
  • The initiation of new programs under the Agricultural Act of 2014 is expected to lead to a 15-percent increase ($1.6 billion) in government payments. At $12.4 billion, 2015’s expected payments would be the largest since 2010.
  • Minimal asset growth resulting from a modest decline in farmland values and higher debt will leave 2015 farm equity unchanged from 2014.
  • After several years of improvement, farm financial risk indicators such as the debt-to-asset ratio are expected to increase in 2015, indicating increasing financial pressure on the sector.

Falling Crop Prices and Receipts Forecast for 2015

The annual value of U.S. crop production is expected to decline in 2015 from 2013’s record high value, reflecting net inventory loss and the third straight year of declining cash receipts for crops. The largest forecast decline is for corn receipts, which have fallen 38 percent since 2012. Corn for grain is expected to see drops in both quantity sold and price in 2015. Large declines in receipts are also expected for fruit/tree nuts, oil crops, and wheat. Smaller declines are anticipated for rice, cotton, and vegetables/melons.

Value of Livestock Production Forecast Lower in 2015

The value of U.S. livestock production is forecast to decline in 2015, as a sharp drop in receipts more than offsets a positive value of inventory change. Cattle/calf receipts are expected to grow significantly while hog and milk receipts decline. Prices are expected to increase for cattle and calves and drop for hogs and milk. Beef production and beef/veal exports are expected to decline while pork production and exports are expected to increase. Milk production and marketings are expected to increase in 2015 while milk exports are expected to decline. Poultry/egg receipts and miscellaneous livestock receipts are expected to change little. See data on

Production Expenses To Increase More Slowly in 2015

The projected $2.5-billion increase in 2015 production expenses extends the upward movement in expenses that has occurred over the past 6 years. However, the increase in 2015 is expected to be the smallest since expenses declined in 2009. Production expenses forecast for 2015 would be the highest on record nominally but lower than 2014 in inflation-adjusted dollars. Overall input prices will again be higher, as reflected by the projected 3.3-percent rise in the Production Items, Interest, Taxes, and Wage Rates (PITW) prices-paid index. If realized, total production expenses ($370 billion) would constitute 83 percent of gross farm income in 2015, the highest share in the last 6 years, indicating a return to tighter margins.

The largest increase among expenses is a projected $3.5-billion (10.6 percent) jump in livestock and poultry purchases in 2015. Other significant increases are in total labor expenses ($1.4 billion); miscellaneous expenses, which include items like animal health/breeding expenses, contract production fees, and irrigation water ($1.3 billion); and total interest expenses ($1.1 billion). Fuel and oil expenses are expected to fall $4.6 billion. Other anticipated declines are in feed expenses ($1.6 billion) and fertilizer ($1.1 billion).

The two major livestock-related expenses—feed and livestock/poultry purchases—are expected to move in opposite directions, resulting in a net increase of $1.9 billion (2.1 percent). The projected decrease in feed expenses and the increase in livestock/poultry purchases are both primarily the result of price changes. The annual average prices-paid index for total feed is predicted to fall 3.6 percent in 2015. The price index for complete feeds, which has the heaviest weight in the feed prices paid index, has declined 13 percent since it peaked in May 2014. Although feed grain prices seem to be leveling off, prices for complete feeds will likely continue to decline during 2015 as feed grains purchased in 2014 are processed.

Demand for feed should be up. The number of cattle on feed is projected to be slightly higher in 2015 and cattle are being fed to heavier weights because of lower feed prices. Hog and broiler production are both expected to be up more than 4 percent during 2015.

Since cattle purchases comprise 75 percent of livestock and poultry purchases, they are still being driven by sustained high prices for feeder steers. The price for Oklahoma City feeder steers is forecast to rise 16.5 percent in 2015, due primarily to the tight inventory of cattle. High retail prices for beef, strong export markets, and lower feed costs continue to support demand for feeder cattle.

The three major crop-related expenses—seeds, fertilizer, and pesticides—are forecast to decrease a combined $0.5 billion (0.8 percent) in 2015 due to small increases in seed and pesticide purchases and a decrease in fertilizer purchases. Factors other than the small price movements for these inputs—seeds and pesticides up and fertilizer down—may carry more weight than usual in 2015. A 1.2-percent drop in planted acreage of grains and oilseeds, induced primarily by low market prices, will likely moderate expenses in 2015, though expenses will still need to be sufficiently high to achieve the projected 2.8-percent increase in total crop production. Purchases of crop-related inputs could accelerate in early 2015 because some operators have postponed purchases in the hope that weak demand will lower prices before planting time.

Fuel and oil expenses are forecast to decrease by 26.7 percent in 2015. Corresponding to the drop in oil prices, the Department of Energy projects a 34-percent drop in the price of diesel in 2015. As a result, fuel and oil expenses are expected to constitute 3.4 percent of total expenses in 2015, down from an average 4.8 percent during the previous 5 years.

The principal livestock and crop expenses plus electricity, the components of farm-origin and manufactured input expenses, comprise the bulk of material input operating expenses. Combined, these input expenses will have risen nearly 93 percent since 2005 while other expenses have risen only 51 percent. As a result, their total is expected to constitute 48 percent of total expenses in 2015, up from a 42-percent share of total expenses in 2005.

Payments to Stakeholders Expected To Increase Modestly in 2015

Net value added is distributed among stakeholders and equity owners. Stakeholders provide the hired labor, leased capital, and rental land used in agricultural production. Since stakeholders do not own what is produced, they do not share in the risks involved in producing highly variable agricultural output. Subsequently, the payments that stakeholders receive are more stable over time than net returns to the owners of agricultural production. Payments to stakeholders often move in a different direction than net value added. In 2015, payments to stakeholders are forecast to increase by $1.9 billion in 2015 (3 percent) while net value added is forecast to fall $32.5 billion (18.8 percent). If these changes occur, payments to stakeholders will comprise 48 percent of net value added in 2015.

Employee compensation (hired labor) is expected to increase $1.4 billion (4.6 percent) in 2015. During the last 4 years, hired labor expenses will have risen by 42 percent. Total labor expenses (including contract labor) are also expected to climb $1.4 billion (4.0 percent) in 2015 due to a predicted 1.0-percent increase in wage rates and a rise in total output.

Net rent to non-operator landlords is forecast to decrease by 3.2 percent. Cash rent should be lower because of the drop in planted acres and share rent will fall due to the reduction in crop value of production.

Total interest expenses are forecast to increase by 6.2 percent in 2015 as nonreal estate interest expenses rise 7.5 percent and real estate interest expenses increase 5.4 percent.

New Programs Contribute to Higher Government Payments in 2015

The initiation of new programs under the Agricultural Act of 2014—such as the Price Loss Coverage (PLC) and Agricultural Risk Coverage (ARC) programs—is expected to lead to a 15-percent increase in government payments in 2015. Payments under these new programs are projected to exceed recent payments under some repealed programs such as the Direct and Countercyclical program and the Average Crop Revenue Election program.

Upland cotton is the only formerly covered commodity that will not qualify in either PLC or ARC. The Cotton Transition Assistance Program was designed to issue payments in 2014 and 2015 only. Those payments should decline sharply in 2015 as they are limited to upland cotton farmers in counties not yet covered by the new Stacked Income Protection (STAX) program.

The Milk Income Loss Contract ended in 2014 and is replaced by the Dairy Margin Protection and Dairy Product Donation programs. However, no payments are expected under these programs in 2015, as prices remain high enough not to trigger payments.

The forecast decline in supplemental and ad hoc disaster assistance programs in 2015 reflects a sharp decline in livestock forage disaster payments, which spiked in 2014. The Noninsured Crop Disaster Assistance Program (NAP) has been expanded to include protection at higher coverage levels. The Supplemental Revenue Assistance Program (SURE) was not reauthorized in the 2014 Farm Bill.

The Conservation Reserve Program (CRP) is the USDA’s largest conservation program and continues through 2018 with an annually decreasing enrolled acreage cap.

2014 Farm Income Forecast: Outlook Improved Since November’s Forecast

USDA’s February 2015 forecast for 2014 farm sector income has improved since last November. The latest forecast for 2014 net farm income has increased. This reflects more favorable receipts for corn and oil crops and lower expected expenditures on manufactured inputs such as fertilizer, lime, soil conditioners and fuel/oils. The earlier negative value of inventory adjustment expected for livestock is now slightly positive, reversing an earlier expected decline in end-of-year cattle inventories. Prospects for net cash income for 2014 have also improved as cash expenditures are expected to remain stable while significant upward revisions are anticipated in crop receipts.

Source:, 2-10-2015

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