After 3 consecutive years of decline, farm sector profits are forecast to be relatively stable in 2017. Net farm income, a broader measure of profits, is forecast to increase $1.7 billion (2.7 percent) from 2016 to $63.2 billion in 2017 and net cash income is forecast to increase $3.7 billion (3.9 percent) to $96.9 billion, in nominal terms.
Inflation-adjusted net farm income is forecast to be relatively unchanged from 2016, while inflation adjusted net cash farm income is forecast to rise 2.1 percent. The stronger forecast growth in net cash farm income is largely due to an additional $2.1 billion (nominal) in cash receipts from the sale of beginning-of-year crop inventories.
The net cash farm income measure counts those sales as part of current-year income while the net farm income measure counted the value of those inventories as part of prior-year income.
- Overall, cash receipts are forecast to increase $8.6 billion (2.4 percent) in 2017 to $365.1 billion, reflecting a 7.6-percent increase in animal/animal product receipts. Most animal and animal product prices are expected to rise and quantities sold are forecast to increase. In particular, cash receipts for broilers, hogs, and cattle/calves are expected to see strong growth in 2017 after posting significant declines in 2016. Crop cash receipts in total are forecast to fall $3.8 billion (2 percent) from 2016 levels to $189.9 billion, largely due to expected declines in prices for some crops.
- Broiler cash receipts are forecast up $4.1 billion (15.9 percent), milk up $3.5 billion (10.0 percent), hogs up $1.6 billion (8.7 percent), and cattle/calves up $3.3 billion (5.2 percent). These gains reflect anticipated increases in both prices and quantities sold.
- Fruit/nut and soybean cash receipts are forecast down $4.4 billion (15.3 percent) and $3.2 billion (7.6 percent) respectively. Partially offsetting these decreases, cotton cash receipts are forecast up $2.2 billion (37.2 percent) and vegetables/melons up $1.5 billion (7.8 percent).
- Direct Government farm program payments—those made “directly” by the U.S. Government to farmers and ranchers such as Price Loss Coverage, Agricultural Risk Coverage, and conservation program payments—are forecast to decline $1.8 billion (13.8 percent) in 2017 to $11.2 billion.
- Federal Crop Insurance Corporation indemnities—payments made by private insurance companies to farm operators for their insured crop losses—are forecast to rise in 2017 by $1.1 billion, or 25.1 percent, to $5.4 billion.
- Total production expenses are forecast to increase $5.3 billion (1.5 percent) in 2017 to $355.8 billion after falling year-over-year in both 2015 and 2016. Inflation-adjusted total production expenses are forecast to be relatively unchanged from 2016. In nominal terms, interest expenses are forecast up $2.1 billion (12.3 percent) and hired labor expenses up $1.1 billion (4.1 percent). Expenses for fuels and oils are forecast up by $1.7 billion (13.8 percent) after 2 years of decline. In contrast, expenses for fertilizer are forecast to drop $1.0 billion (4.7 percent) and feed to drop $1.9 billion (3.4 percent).
- Farm sector assets are forecast to increase 2.7 percent in 2017 to $3.0 trillion, largely due to a 3.3-percent increase in farm real estate assets. Farm sector debt is forecast to rise 2.9 percent to $385.2 billion, with real estate debt forecast to rise 4.6 percent to $236.4 billion. Farm sector equity is expected to increase by 2.7 percent to $2.65 trillion, and debt-to-asset levels for the sector are forecast to be essentially unchanged from 2016.
- The forecast for direct Government payments reflects disaster payments, including payments related to Hurricanes Harvey and Irma and the wildfires expected to be paid out in calendar year 2017. The forecast for 2017 commodity insurance indemnities includes payments for certain hurricane-related insured losses. However, additional direct Government payments and insurance indemnities related to the 2017 disasters will likely be paid out in calendar year 2018. Forecast value of crop and livestock production incorporates production and price forecasts from the latest (November 2017) World Agricultural Supply and Demand Estimates report, but makes no additional adjustments. See the ERS Newsroom for general information about Hurricane Impacts on Agriculture.
Value of Agricultural Sector Production Expected To Rise in 2017
The value of agricultural sector production is composed primarily of crop and livestock cash receipts, adjusted for any changes in the value of inventories and home consumption plus farm-related income. The value of U.S. agricultural sector production is expected to rise $8.7 billion (2.2 percent) in 2017 to $407.8 billion.
Grain News on AgFax
An $11.3-billion (6.9 percent) increase expected for the value of animals/animal products and a $3.3-billion increase in farm-related income more than offset a predicted $5.9-billion (3.1 percent) decrease in the value of crop production (see detail on value of production in the table on value added).
The forecast decline in the value of crop production from $189.0 billion in 2016 to $183.1 billion in 2017 reflects an expected $3.8-billion drop in cash receipts from the sale of crops, a $2.1-billion decrease in the adjustment for the value of the change in crop inventories, and a $6.1-million drop in the value of crops consumed on the farm (home consumption).
The forecast increase in the value of animal/animal product production from $165.5 billion in 2016 to $176.8 billion in 2017 reflects an expected $12.4-billion increase in cash receipts and a $9.6-million increase in the value of animal and products consumed on the farm (home consumption). This increase is offset by a $1.1-billion decrease in the value of inventory adjustment for animals/animal products.
Farm-related income is expected to rise by $3.3 billion (7.4 percent) to $47.8 billion in 2017, with nearly all categories forecast to increase. Federal Crop Insurance Corporation (FCIC) indemnities are forecast up almost $1.1 billion (25.1 percent) to $5.4 billion in 2017. Net cash rent received by operator landlords is the only farm-related income category not expected to increase, remaining relatively flat.
Total Crop Receipts Expected To Decline in 2017
Crop cash receipts—the cash income from crop sales during the 2017 calendar year—are forecast to be $189.9 billion, a decrease of $3.8 billion (2.0 percent) from 2016.
Corn receipts are expected to decline $0.2 billion (0.5 percent) in 2017 (dropping for the fifth consecutive year) as the U.S. average corn price is expected to drop from 2016 to 2017.
Despite an expected increase in wheat prices, wheat receipts are expected to decline $0.5 billion (5.8 percent) from 2016 due to an anticipated decline in wheat quantities sold. Lower soybean receipts ($3.2 billion or 7.6 percent) in 2017 reflect a decline in quantity sold more than offsetting higher soybean prices.
Rice receipts are forecast to decline $0.1 billion (4.5 percent) in 2017, reflecting a lower average U.S. price and reduced quantities sold. The expected increase ($2.2 billion or 37.2 percent) in 2017 cotton receipts reflects a large increase in the quantity of upland cotton sold.
Vegetable and melon cash receipts are expected to rise $1.5 billion (7.8 percent) in 2017. Dry bean receipts are expected to rise $0.1 million (11.6 percent), reflecting an anticipated increase in prices and quantities sold in 2017. Potato receipts are expected to rise $0.3 billion (8.3 percent), reflecting greater quantities sold.
Cash receipts for fruits and nuts are expected to decline almost $4.4 billion (15.3 percent) in 2017. Sugarcane receipts are expected to rise almost 11 percent in 2017 while receipts for sugar beets are expected to decline 12.4 percent.
Animal/Animal Product Receipts Forecast To Rise in 2017
Total animal/animal product cash receipts are expected to rise $12.4 billion (7.6 percent) to $175.3 billion in 2017. This increase reflects strong gains in receipts for meat animals, milk, and poultry/eggs.
Milk receipts are expected to increase $3.5 billion (10 percent) in 2017, reflecting expected increases in both the price and quantity sold. Cash receipts from cattle and calves are expected to increase $3.3 billion (5.2 percent) from 2016 as cattle/calf prices and quantities sold rise. Hog prices and quantities sold are both expected to rise in 2017, leading to a forecast increase in hog cash receipts of $1.6 billion (8.7 percent).
Broiler receipts are expected to rise $4.1 billion (15.9 percent) as both prices and quantities sold increase in 2017. Chicken egg receipts are expected to rise $0.9 billion (14.2 percent) as both egg prices and quantities sold increase in 2017. Turkey receipts are expected to decline $1.3 billion (20.4 percent) in 2017, reflecting a sharp price decline softened by a marginal increase in quantity sold.
Rising Quantities Sold Account for Most of the Forecast Increase in Cash Receipts
Total farm cash receipts across all commodities are expected to increase $8.6 billion (2.4 percent) to $365.1 billion in 2017. To better understand the factors underlying the movement in annual receipts, we decompose them into two separate effects: a “price effect” with quantity change held constant (unchanged), and a “quantity effect” with price change held constant.
However, the change in cash receipts for a small share of commodities cannot be decomposed into price and quantity effects. The difference between the total change in cash receipts ($8.6-billion increase) for all commodities and the change in receipts ($8.0 billion) for those commodities for which annual price and quantity sold data both exist is about $0.6 billion in 2017.
Price changes (the price effect) from 2016 to 2017 for crops and animals/animal products are expected to account for a $2.6-billion increase in commodity cash receipts—the combined effect of a $7.2-billion increase in animal/animal product receipts and a $4.6-billion decline in crop receipts due solely to annual price change.
The quantity effect is over twice as large, and is expected to increase cash receipts by $5.4 billion in 2017: $5.0 billion from additional quantities sold of animal/animal products and $0.4 billion from additional quantities of crops sold.
Direct Government Farm Payments Forecast To Decline in 2017
Direct government farm program payments are those made “directly” by the Federal Government to farmers and ranchers without any intermediaries. They include payments from the programs created in the 2014 Farm Bill, as well as a few other programs, but do not include FCIC insurance indemnity payments or USDA loans. Direct government farm program payments are forecast to decline almost 14 percent in 2017 from 2016 (see table on government payments).
USDA’s Price Loss Coverage (PLC) and Agricultural Risk Coverage (ARC) programs are collectively expected to account for almost 61 percent of all direct government payments in 2017. While PLC and “disaster” program payments are expected to increase in 2017, declines are anticipated for ARC payments and other major programs.
Crop price-based programs
PLC is a price-based program whereas ARC is a revenue-based program where payments for each covered commodity are based on the number of “base” acres enrolled in the program. Base acres are a farm’s crop-specific acreage of wheat, feed grains, rice, oilseeds, pulse crops, or peanuts eligible for farm program payment purposes. Base acres do not necessarily align with current plantings.
PLC program payments are issued when the effective price for a commodity is less than the reference price for that commodity. Wheat is expected to receive about 40 percent of PLC payments in 2017, followed by long-grain rice (about 22 percent) and peanuts (about 17 percent).
The increase in PLC payments from $1.9 billion in 2016 to $3.1 billion in 2017 mostly reflects increases in wheat PLC payments, followed by increases in payments for corn, grain sorghum, and long-grain rice. No PLC payments were made for soybeans in 2016 and none are expected for 2017.
ARC payments, forecast to be $3.7 billion in 2017, are expected to decline almost $2.4 billion from 2016. Corn ARC payments are expected to decline about $1.3 billion, followed by an almost $0.9-billion decline in soybean payments. Corn payments, which accounted for about 60 percent of 2016 ARC payments, are expected to account for about 75 percent of 2017 ARC payments.
Marketing Loan Benefits (MLBs)—composed of Marketing Loan Gains (MLGs) and Loan Deficiency Payments (LDPs)—are forecast to decrease $194.4 million (94.4 percent) to $11.6 million in 2017, mostly due to expected higher prices for upland cotton and peanuts.
Conservation payments—reflecting the financial assistance programs of USDA’s Farm Service Agency and Natural Resources Conservation Service—are expected to decrease by $83.8 million (2.2 percent) to $3.7 billion in 2017.
All other farm program payments
Supplemental and ad hoc disaster assistance payments are forecast to rise $41.1 million (6.2 percent) to $0.7 billion in 2017. While some disaster payments related to the recent hurricanes (Harvey, Irma, and Maria) have been made in 2017, most payments are not expected to be made until 2018. Instead, most of the expected increase is for the Livestock Forage Program, reflecting ongoing drought conditions in the Dakotas and Montana, as well as losses by honeybee producers.
The Dairy Margin Protection Program (MPP) is forecast to return $5 million to the Federal Government in 2017, after payments from the program are adjusted by the fees and premiums paid by dairy participants. This reflects the impact of higher milk prices in 2017.
Production Expenses Forecast Higher in 2017
After reaching record highs exceeding $390 billion in 2014, farm sector production expenses (including operator dwellings) declined by more than $40 billion the next 2 years. Following a total of $350 billion in 2016, 2017 production expenses are forecast higher at $356 billion. Continued forecast declines in expenses for inputs typically produced on farms—including feed and livestock/poultry—are more than offset by forecast increases in fuel, labor, and interest expenses.
See data tables on production expenses.
- Livestock and poultry purchases are expected to increase for the first time since 2014.
- A forecast double-digit increase (13.8 percent) in spending on fuels and oils, which accounts for less than 5 percent of cash expenses, would reverse the recent trend of lower fuel expenses over the last 2 years. This forecast is driven in part by the U.S. Energy Information Agency’s forecast of higher diesel prices (by more than 30 cents per gallon, on average) in 2017.
- Fertilizer, lime, and soil conditioner expenses are forecast lower by $1.7 billion (down 7.2 percent) in 2017, based on lower fertilizer prices and fewer planted acres (though yields and total production are expected to increase) in 2017 for the top 14 planted crops.
- Labor costs are forecast to increase in 2017 by 3.5 percent, continuing the increase in 2016. Wage rate increases are putting upward pressure on hired labor costs.
- Interest expenses (including operator dwellings) are expected to increase by 12.3 percent in 2017, driven by higher forecast debt levels and rising interest rates on new and variable-interest-rate debt.
- Net rent expense (including landlord capital consumption)—the amount paid to rent land, adjusted for any payouts of the landlord’s share of Government payments and/or insurance indemnities and for any expenses paid by landlords—is forecast to increase by 1.1 percent to $19.7 billion in 2017. As in recent years, the majority of net rent expense will be paid to nonoperator landlords (farmland owners who do not themselves farm) versus landlords who are also operators.
Payments to Stakeholders Expected To Increase in 2017
In 2017, payments to stakeholders are forecast to increase by $3.5 billion (5.4 percent), while net value added is forecast to increase by 4.1 percent (see chart below for inflation-adjusted series trends). Net value added represents the sum of economic returns to all the providers of factors of production.
It is distributed among stakeholders who receive a fixed payment in return for their services and equity owners who share in the net farm income (profits) of the sector. Stakeholders provide the hired labor, leased capital, and rental land used in agricultural production, but in most cases do not directly share risk in the short term. An exception is landlords who sign share-rent agreements with operators.
Consequently, the payments that stakeholders receive can be more stable over time than net farm income received by equity owners.
See data related to payments to stakeholders.