Farm Sector Income & Finances 2015 Outlook. By Ryan Kuhns and Kevin Patrick Economics Research Service, USDA

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1 Farm Sector Income & Finances 2015 Outlook By Ryan Kuhns and Kevin Patrick Economics Research Service, USDA

2 Net cash and net farm income forecast below 10-year moving average for first time since 2009 $1,000 (2009 dollars) 140,000, ,000, ,000,000 80,000,000 60,000,000 40,000,000 20,000, F 2015F Annual net cash income 10-year movng average net cash income Annual net farm income 10 year moving average net farm income F=forecast The GDP chain-type price index used to convert the current-dollar statistics to real (inflation adjusted) amounts (2009=100) Source: USDA, Economic Research Service, Farm Income and Wealth Statistics. Data as of February 10, 2015.

3 Crop and livestock receipt forecasts driving major changes to net farm income from 2014F to 2015F $ $15.6 -$8.2 $0.7 $1.6 $73.6 -$10.1 -$2.5 -$ F-2015F change ($ billions) -$34.4 billion Net farm income 2014F Crop receipts Change in crop inventory Livestock receipts Change in livestock inventory Government Payments Production Expenses All other changes Net farm income 2015F Source: USDA, Economic Research Service, Farm Income and Wealth Statistics. Data as of February 10, 2015.

4 Crop receipts are expected to fall for all major crops in 2015 $ billion F 2015F Corn Oil crops Fruits and tree nuts Vegetables and melons Wheat Cotton F=Forecast Source: USDA, Economic Research Service, Farm Income and Wealth Statistics. Data as of February 10, 2015.

5 Total livestock and products receipts are forecast down 5 percent in 2015 $ billion F 2015F Cattle and calves Dairy Broilers Hogs F=Forecast Source: USDA, Economic Research Service, Farm Income and Wealth Statistics. Data as of February 10, 2015.

6 30 $ billion Government payments to farm producers, F All other payments 3/ Function of crop price payments 2/ Conservation payments Fixed payments 1/ F 2015F 1/ Includes direct payments (through 2013), cotton transition payments ( ).Payment rates are fixed by legislation. 2/ Includes counter-cyclical payments, average crop revenue election (ACRE) payments, loan deficiency payments, marketing loan gains, certificate exchange gains (ended after making payments for 2009 crop year), Price Loss Coverage(PLC), and Agricultural Risk Coverage (ARC ). 3/ All other payments include disaster relief payments, tobacco transition payments, and dairy program payments. F=Forecast Source: USDA, Economic Research Service, Farm Income and Wealth Statistics using FSA, NRCS and CCC input data. Data as of February 10, 2015.

7 Real cash expenses expected to decline for the first time since 2009 Billions (2009 dollars) % average increase per year ( F) % average increase per year ( ) F F=Forecast The GDP chain-type price index is used to convert current-dollar amounts to real (inflation adjusted) amounts (2009 = 100). Source: USDA, Economic Research Service, Farm Income and Wealth Statistics. Data as of February 10, 2015.

8 Despite lower fuel costs, production expenses forecast to rise 2.5 billion -2.7% $ billion % 10.6% 4.1% % -26.7% 0.8% -3.2% 6.2% 5.0% Fuels Pesticides Rent Interest Repairs Seed Fertilizer Livestock Labor Feed F F=Forecast Source: USDA, Economic Research Service, Farm Income and Wealth Statistics. Data as of February 10, F

9 Farm Businesses Account for over 90% of farm production and 930,000 Percent farms ,160, , Farms Production Assets Debt Operators report they are retired or have a major occupation other than farming. Gross cash farm income less than $350,000 and operators report farming as their major occupation. Farm Businesses Residence Intermediate Commercial Gross cash farm income greater than $350,000 and farms organized as nonfamily corporations or cooperatives. Source: 2013 Agricultural Resource Management Survey (ARMS)

10 Average net cash income forecast lower for farm businesses 1 specializing in crop production $1, F 2015F Cotton and rice Specialty crops Corn Mixed grain Soybeans and Wheat peanuts 1 Farm level forecasts derived from partial budget modeling on the 2013 Agricultural Resource Management Survey (ARMS) using the sector forecasts. The model is static and therefore does not account for changes in crop rotation, weather, and other local production impacts that occurred after the base year. F = forecast Source: USDA, Economic Research Service, Farm Income and Wealth Statistics. Data as of February 10, 2015.

11 $1, Average net cash income also forecast to fall for farm businesses 1 specializing in livestock, dairy and poultry F 2015F Hogs Dairy Poultry Beef cattle 1 Farm level forecasts derived from partial budget modeling on the 2013 Agricultural Resource Management Survey (ARMS) using the sector forecasts. The model is static and therefore does not account for changes in crop rotation, weather, and other local production impacts that occurred after the base year. F = forecast Source: USDA, Economic Research Service, Farm Income and Wealth Statistics. Data as of February 10, 2015.

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14 Farm Balance Sheet Outlook

15 $ trillion 3 First expected decline in real 1 asset and equity values since Debt Equity F F=Forecast 1 The GDP chain-type price index is used to convert current-dollar amounts to real (inflation adjusted) amounts (2009 = 100). Source: USDA, Economic Research Service, Farm Income and Wealth Statistics. Data as of February 10, 2015.

16 Real estate debt growth forecast to slow in 2015 Nonreal estate debt forecast to grow faster in 2015

17 Farm real estate accounts for the majority of the sector s assets and equity Nonreal estate debt $141.0 Assets $ billions Real estate debt $186.4 Real estate debt Nonreal estate debt Equity Equity $2, % Real estate equity Nonreal estate equity 84% Equity Source: USDA, Economic Research Service, Farm Income and Wealth Statistics. Data as of February 10, 2015.

18 An expected small decline in farm real estate values leads to slower asset and equity growth Percent change from previous year F percent decline in farm real estate assets Real estate assets Equity Assets F = forecast Source: USDA, Economic Research Service, Farm Income and Wealth Statistics. Data as of February 10, 2015.

19 Sector leverage remains historically low despite debt being forecast to grow faster than assets in 2015 Percent F Debt to asset ratio Debt to equity ratio F = forecast Source: USDA, Economic Research Service, Farm Income and Wealth Statistics. Data as of February 10, 2015.

20 Share of highly leveraged farm businesses forecast to increase in 2015F Share of farm businesses Crops Livestock D/A ( ) D/A (0.71 +) D/A ( ) D/A (0.71 +) F = forecast Source: USDA, Economic Research Service, Farm Income and Wealth Statistics. Data as of February 10, 2015.

21 3 The rate of return on farm assets expected to fall in Return on assets from income Decomposing the rate of return on farm assets (ROA) ROA = Asset Turnover Ratio Profit Margin Ratio Value of production that assets generate Profit margin on value of production F = forecast Source: USDA, Economic Research Service, Farm Income and Wealth Statistics. Data as of February 10, Sector financial ratio documentation:

22 3 The rate of return on farm assets expected to fall Return on assets from income Profit margin Asset turnover F = forecast Source: USDA, Economic Research Service, Farm Income and Wealth Statistics. Data as of February 10, 2015.

23 Farm Real Estate Outlook

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25 Increases in December 31 st farm real estate values were greatest in corn producing regions from 2012 to 2013 Charts and Maps of U.S. Farm Balance Sheet Data:

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31 Additional Analysis and Data Farm Sector Income & Finances Analysis coinciding with each of the ERS farm income group data release. Farm Sector Income and Wealth Statistics Data product updated 3 times per year. Next update: August 25 th, Includes historical state and national estimates, and national forecasts. Charts and Maps of U.S. Farm Balance Sheet Data Lets users visualize farm balance sheet data series and generate maps of farm real estate values for different years.

32 Amber Waves: Presents current ERS economic and policy research on agriculture, food, rural America, and the environment for policymakers, academics and the public. Via web connection or mobile app

33 Chart of Note: Daily chart and short analysis on current ERS economic and policy research on agriculture, food, rural America, and the environment for policymakers, academics and the public. Farm income Chart of Note from March 2 nd, 2015.

34 QUESTIONS? Ryan Kuhns Mitch Morehart Kevin Patrick Ted Covey