Weak crop and livestock prices combined to pull down U.S. net cash farm income — a measure of farmers’ ability to pay bills and make payments on debt — 28 percent in 2015, the second year of falling income. “One of the key questions facing agriculture is whether farm income will decline for a third straight year,” writes Brent Gloy at the blog Agricultural Economic Insights. It is a steep challenge. Livestock accounts for half of cash receipts and market prices at present as substantially below their 2015 levels; crop prices are modestly lower. Production costs are starting to moderate.
“In total, significant price recovery in livestock or a broad based increase in crops would likely be required for 2016 income to rise above 2015,” says Gloy. “While we wouldn’t rule that out, it is also possible that prices could decline further. If so, incomes would almost certainly fall again.”
Financial stress increased on producers in 2015, indicated by increases in debt-to-asset and debt-to-equity ratios. At 12.8, the debt-to-asset ratio for 2015 was the highest in six years. “However, the sector appears to have remained well insulated from solvency risk,” says the USDA, although land values, investments and other assets declined modestly last year. Growers paid down debt and relied heavily on cash in making purchases in the past few years, thanks to a commodity boom that began in 2006 and peaked in 2012. The USDA will make its first estimate of farm income for 2016 on Feb. 9.