Record livestock prices and bumper crops are blunting greatly a downturn in the farm economy, said the Agriculture Department in its semiannual Farm Sector Income forecast. USDA says net cash farm income, a measure of the ability to pay bills, will drop by 6 percent this year instead of the 22 percent plunge forecast in February. Net farm income, a gauge of wealth, is forecast to fall by 14 percent rather than the 22 percent plummet initially expected.
“Our improved outlook is largely the result of improved prospects for the value of both crop and livestock production,” said USDA. Cattle, hog, milk, broiler chicken and egg prices are expected to record their highest annual price ever. Overall, livestock receipts would be up 15 percent from 2013. Lower crop prices will be offset partially by large crops – record corn and soybean harvests are forecast – but the value of this year’s crops will be nearly 11 percent below the record set last year.
Production expenses would climb by 4 percent, or $14 billion, this year, the fifth year in a row of rising costs. The largest factor is a 22 percent increase in the cost to producers to buy livestock. The price of feeder steers would leap by 24 percent. Feed prices are estimated to fall by 3 percent, a much smaller drop than seen in feed grains, because other feeds remain pricey. The price of complete feeds is up by 5 percent since January. The three big-ticket items for crop farmers – seed, fertilizer and pesticides – are expected to rise by 3 percent this year.
“If realized, total production expenses would constitute 77 percent of gross farm income in 2014, the highest since 2010, indicating a return to tighter margins,” said USDA.
Government payments, including conservation, disaster relief and crop subsidies, were forecast at $9 billion this year, down 15 percent from the previous year.
USDA has forecast a stretch of years of lower crop prices, like the late 1990s. Iowa Senator Chuck Grassley told reporters that farmers “probably are prepared for some downturn” after the boom in income that began in 2006. “Leveraging by farmers is a lot lower than it was before,” he said, so fewer will face financial stress in the near term.