AgWatch


Farmers Brace For More Belt-Tightening

SARA WYANT

WASHINGTON, D.C.
   The writing has already been “on the wall,” but USDA’s recent farm income forecast made it official: Net farm income is headed downward once again, now projected to be the lowest since 2006.
   Both net cash and net farm income are forecast to decline for the second consecutive year after reaching recent historic highs in 2013 (in nominal terms). Net cash income is expected to fall by 21 percent in 2015, while the forecast 36-percent drop in net farm income would be the largest since 1983.
   That is largely because farmers will sell down their crop and livestock inventories more than last year in order to pay living and operating expenses and pay off debt, explains Mitch Morehart, a USDA economist who compiles the estimates. Cash income “depends on how much of this year’s production gets sold this year,” he says.
   But soft markets will continue for most top U.S. farm commodities. The national monthly price index for June, the latest one, has crop prices to farmers 11 percent lower than a year earlier.
   Crop receipts for 2015 are expected to decrease by $12.9 billion (6.2 percent) in 2015, led by a projected $7.1-billion decline in corn receipts, $3.4 billion in soybean receipts, $2.1 billion drop in cotton receipts and $1.6 billion in wheat receipts compared to 2014. Rice cash receipts are expected to decline by 21.9 percent on lower expected production and calendar-year prices. 
   Livestock receipts are forecast to decrease by $19.4 billion (9.1 percent) in 2015 largely due to lower milk and hog prices.
   On a global scale, the food commodities index of the United Nations Food and Agriculture Organization has already dropped by 18 percent from the 2014 average, and its dairy products benchmark is down 33 percent.
   At the American farm operating level, “There’s a lot less room for error at these prices,” says Bob Young, the American Farm Bureau Federation’s chief economist. Weak agricultural markets will persist for a year or two, he says, and “farmers will be tightening up.”
   Even with the second-biggest U.S. soybean crop and third-largest corn crop on tap, the generous net margins of $1,000 per acre or more for a few years are gone. Gary Schnitkey, University of Illinois economist, explains the situation in his operating budget and income summary for a highly productive grain farm. Even if selling corn at $4.20 per bushel and soybeans at $10 (both more than USDA now expects), farmers who combine cash-rented and share-rented land with owned land will lose money overall, he says.
   Schnitkey reports that cash rent, now typically a lofty $285 an acre, plunges the budget into the red, and he says such operators will have to extract lower rental rates, plus trim seed, fertilizer, chemical, machinery and other expenses to achieve a break-even budget next year.
   Farmers who we surveyed in late August were already planning to tighten their belts – cutting back on everything from cash rent, to fertilizer and farm equipment – as they expect farm income to drop once again in 2015-16. At least those are some of the outcomes that were gleaned from the latest Agri-Pulse Farm Opinion Poll, conducted August 17-24, and sponsored by Agri-Pulse and the Iowa Soybean Association (ISA). 
   For those planning to trim expenses, almost 60 percent said they plan to curtail farm equipment purchases. That’s consistent with the outlook from major farm equipment manufacturers. For example, John Deere, revised its 2015 profit forecast downward by two points to 21 percent as sinking corn and soybean prices reduce growers’ incomes.
   However, farm equipment isn’t the only purchase that will be scaled back this year. 
   • 47 percent also said they plan to cut back on farm rent payments, 
   • Almost 40 percent said they plan to trim fertilizer applications, 
   • 37 percent plan to trim seed purchases
   • 30 percent plan to reduce crop chemical purchases.
   Of course, the farm financial outlook is not all doom and gloom. On agriculture’s livestock side, 2015’s overall profits are moderately strong because markets are so varied. With the U.S. cattle herd now the tiniest since the 1950s, fat cattle prices are still near a burly $150.
   Also, after bird flu wiped out 48 million or more laying hens and turkeys in the Midwest this year, wholesale large eggs are fetching around $2 per dozen, about double year-ago prices, and frozen turkeys, at nearly $1.30 a pound, are running 20 percent above the August average.
   However, with domestic demand flat and meat export demand down from last year, hog and chicken slaughter exceeds demand and prices for both have plunged far below year-ago levels. Dairy farmers are squeezed, too. Owing in part to the strong dollar, dairy exports are down this year and imports are higher, while domestic demand is flat and U.S. milk production is running about 1 percent higher than last year. So the all-milk price to farmers, which averaged $24 per hundredweight (cwt) last year, has withered to under $17.
   There could also be some good news on farm inputs, with some prices trending downward.
Fuel and oil expenses are forecast to decrease by almost 28 percent to $12.8 billion in 2015. This reflects the Department of Energy’s forecast of the price of diesel and gasoline fuel, both projected down over 28 percent in 2015.
   Seed, pesticide, and fertilizer expenses, which are the principal inputs into crop production, are expected to decrease by about $2.4 billion in 2015, primarily driven by lower fertilizer expenses, according to USDA. ∆
   Editor’s note: Ed Maixner contributed to this report. 
   SARA WYANT: Editor of Agri-Pulse, a weekly e-newsletter covering farm and rural policy. To contact her, go to: http://www.agri-pulse.com/
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