Both net cash and net farm income are forecast to decline for the second consecutive year after reaching recent highs in 2013. Net cash income is expected to fall by 27.7% in 2015, while the forecast 38.2% drop in net farm income would be the largest single-year decline since 1983.
According to the USDA Economic Research Service, the annual value of U.S. agricultural sector production is expected to fall 9.2% to $427.7 billion in 2015, as the value of both crop and livestock production decline (see table on value of production). The reduction in crop and livestock receipts is largely driven by changes in price rather than changes in output.
Falling prices are primary driver of a forecast drop
Animal and animal product cash receipts increased by 43.8% in real terms from 2005 to 2014, but in 2015 are expected to fall 12% in 2015 (to $186.8 billion). Much of the decline is due to falling dairy and hog receipts, but broilers and cattle/calves are implicated as well. After reaching a record high of $49.3 billion in 2014, milk receipts are expected to drop 28.2% in 2015 as declining prices more than offset an expected increase in milk production.
Hog production is expected to rise in 2015 as the industry recovers from the porcine epidemic diarrhea virus. However, hog prices are expected to drop sharply relative to 2014 and result in a 25% decline in hog cash receipts. Cash receipts from cattle production are also expected to decline by 4.9% in 2015 due to an expected drop in both price received and quantity marketed. The decline has primarily been driven by declining price expectations since the August data release.
Crop receipts are expected to decrease by 8.7%, led by broad price declines for most field crops. Corn cash receipts are expected to decline the most, falling by $8.6 billion in 2015. Since hitting a record high in 2012, corn receipts have fallen 36%. While production is expected to drop slightly relative to 2014, corn prices are expected to fall by a larger percentage in 2015. Cash receipts for soybeans and wheat are also expected to decline from 2014, falling $5.7 and $2.7 billion, respectively. Rice cash receipts are expected to decline by 36.4% ($1.3 billion) on lower expected production and calendar-year prices.
Cash receipts for all commodities are expected to fall by nearly $41.5 billion in 2015. This decline largely reflects falling commodity prices, which are lower for a broad set of agricultural commodities in 2015 relative to recent years.
Production expenses forecast to decline
For the first time since 2009 and for the third time since 2000, total farm production expenses are forecast to fall. The $7.7 billion decline, about 2%, follows a period of rapid increases in production expenses, on average, of over 9% annually (in nominal terms) from 2010 to 2014. Despite the decline in 2015, production expenses are still projected to be high by historic standards, behind only 2014 in both real and nominal terms. The drop in expenses alleviates, but does not completely offset, the effect of the drop in cash receipts, leading to tighter margins.
The forecast decline in expenses is driven primarily by lower spending on feed, fuel and fertilizer, which outweigh expected increases in spending on labor, interest and property taxes/fees.
- Even with higher expected demand for feed due to more cattle being fed, feed expenses are expected to be over $5 billion (8.5%) lower in 2015 due to lower feed prices.
- Continued rebuilding of cattle inventory and renewed poultry purchases to restore inventory depleted by the highly pathogenic avian influenza contributed to forecast livestock and poultry purchases remaining in line with 2014 purchase expenses.
- Fuel and oil expenses are forecast to decrease by over 28% to $12.7 billion in 2015. This reflects the Energy Information Agency’s forecast of the price of diesel and gasoline fuel, both projected down more than 28% in 2015.
- Seed, pesticide and fertilizer expenses, which are the principal inputs into crop production, are expected to decrease by about $3.2 billion in 2015, driven primarily by lower fertilizer expenses.
- Labor costs are expected to increase in 2015 by more than 4%, with most of the increase driven by higher expected wage rates.
The largest forecast increase in farm production expenses is for interest outlays, up significantly due to forecast increases in farm debt. Interest paid on debt secured by real estate is expected to increase by almost 19% in 2015, to $11.4 billion. Interest payments for non-real estate debt are also expected to increase by 23% based on continued demand for operating and other types of non-real estate loans.
Net rent expense — the amount paid to rent land, adjusted for the landlord’s share of government payments and insurance indemnities and net of any expenses paid by the landlords — is forecast to remain relatively flat, decreasing by a little under 1% in 2015. As in recent years, the majority of net rent expense is forecast to be paid to non-operator landlords.
Property taxes and fees — which include real estate and personal property taxes, as well as motor vehicle registration and licensing fees — are expected to increase by more than 7.8% to $15.5 billion in 2015, driven primarily by the increase in the (taxes) prices-paid index.
Miscellaneous expenses — which include insurance premiums, spending on irrigation, production contract fees and grazing fees — are expected to increase slightly in 2015.