During the seven-year commodity boom that ended in 2013, U.S. farm income soared to record highs, a once-in-a-lifetime string of money-making years for many producers. Then commodity prices collapsed, and farm income plunged 50 percent in three years. It now appears to be bottoming out at rates seen a decade ago.
The USDA forecasts net farm income — a measure of profits — of $59.5 billion this year. If the forecast holds up, this would be the third year in a row that income would be around the $60 billion mark. Carrie Litkowski, the leader of the farm income team at the USDA’s Economic Research Service, said it was too early to say if a floor has been set on farm income.
“I don’t think I can say definitively. I’m not sure that anybody could, but I do agree that it appears — I think I’d call it a flattening across 2016, ’17, and ’18,” said Litkowski during a USDA webcast. “The 2018 forecast is still preliminary … so we’ll have to see. But it does look like a flattening to me.”
If the 2018 forecast holds, income would be the lowest since $57.4 billion in 2006, when commodity prices began to accelerate due to rising food demand around the world, a surge in the use of biofuels, and an unexpected shortfall in global food production. The season-average price for U.S. corn, wheat, and soybeans more than doubled during the boom, to set records in 2013. Bumper harvests and mammoth stockpiles worldwide have kept commodity prices in a trough ever since.
According to the USDA, net farm income will drop by $4.3 billion, or 7 percent, from 2017 under the weight of rising production expenses, lower crop and livestock prices, and smaller crop subsidy payments. A marginal increase in farmland values will offset a modest increase in farm debt, with the result that common measures of financial stress, such as the debt-to-asset ratio, will “remain historically low,” said Litkowski. They will, however, be higher than during the boom years.
The debt-to-asset ratio was forecast for 12.7 percent this year, a tick lower than in 2017. During the agricultural recession of the 1980s, the hardest times since the Depression, the debt-to-asset ratio exceeded 20 percent for three years in a row, with a peak of 22.2 percent in 1985.
Net farm income includes goods held in storage, so it is a measure of wealth. Another gauge used by the USDA is net cash farm income, which measures liquidity, or the ability to pay bills. Net cash income, a less volatile indicator, fell by 30 percent from 2013 to 2016, the same span during which net farm income fell by 50 percent. Similarly, while the USDA forecasts a 7 percent decline in net farm income this year, it expects a 5 percent drop in net cash farm income, to $91.9 billion, the lowest level since 2009. In yet another measurement, the USDA says farm income will be the lowest since 2002 in inflation-adjusted dollars.
“We project continuing low commodity prices and trade challenges in the face of large global supplies and a relatively strong dollar for the coming year,” said Agriculture Secretary Sonny Perdue during a House hearing a day before the USDA released its income forecast. “As a result, many farmers will continue to face tight bottom lines, even negative returns in some cases.”
In launching a digital campaign for a stronger farm safety net, the National Farmers Union said, “Family farmers and ranchers are enduring the worst economic slide in generations.”