Low commodity prices will hold net farm income below $60 billion annually – half of the record $123 billion of 2013 – for years to come, said a University of Missouri think tank. “With farm income below recent peak levels and if interest rates increase as forecast, there will be continued pressure on farm finances and farm real estate,” said the Food and Agricultural Policy Research Institute in its 10-year baseline report. Crop subsidies were forecast to hit $9.4 billion in fiscal 2017, which opens on Oct. 1, reflecting the low market prices forecast for this year’s crops.
Like USDA, FAPRI expects a slight decline in farm income this year, after the plunges of 2014 and 2015. Expenses and farm revenue will grow a similar rates from 2016-19, leaving net cash income essentially unchanged, said the think tank.
FAPRI forecast an 8 percent drop, to $2,770 an acre, in the average value of farm real estate from 2015-19. “The reduction in farm income and forecasted increases in interest rates both put pressure on farm real estate values,” it said. Land usually is 80 percent of a farmer’s assets. “Land sale and rental markets show much regional variation. The uncertainty around the estimates of rental rates and land values is large,” said FAPRI.
Farm subsidies would dip to $8 billion in fiscal 2018. At present, payments are driven by the insurance-like Agricultural Risk Coverage subsidy and its reference prices that are based on season-average prices. “After 2015/16, program rules force ARC revenue benchmarks to adjust downward for many crops and counties,” said FAPRI. The 2014 farm law expires with 2018 crops, so FAPRI assumes that grain and soybean growers will shift to the traditionally styled Price Loss Coverage subsidy, which makes payments when market prices are below a trigger level. FAPRI’s estimates of subsidies include cotton and dairy with grain and oilseed spending.
While farm subsidy costs are higher in coming years, crop insurance costs would be lower with the result that total mandatory spending on farm supports is roughly the same as FAPRI estimated a year ago. Crop insurance will cost less because low crop prices reduce the value of revenue insurance, the most popular type of coverage.