Overall, the forecast for the coming production year is 'bright," Robert Johansson, U.S. Department of Agriculture chief economist told attendees at this year's Ag Outlook Forum in Washington D.C., Feb. 19.
"Record production has meant that stock levels are higher and prices are lower, but producers will benefit from record asset levels and from new farm programs intended to cushion declines in farm revenues," Johansson said.
Overall, the financial health of the agricultural sector is strong as it enters a period of lower crop prices. While net farm income is projected to fall in 2015 to $73.6 billion, the lowest since 2007, the debt-to-asset ratio is expected to rise only slightly to 10.9%, the third lowest level since USDA began calculating levels in 1960, and considerably lower than the levels seen during the 1980s farm crisis.
Johansson shared that farm equity – assets minus debt – is one measure of farm sector health. Leading into the 2015 crop year, the farm equity of U.S. producers on average was the highest it has ever been since 1960. During the recent years of record net farm income (2011-2014), U.S. farmers added an estimated $642 billion to farm equity.
Productivity has also increased and USDA projected that looking forward into 2015 and out over the next 10 years, "real output growth will keep pace with or exceed demand, reflected in a declining but flattening long-run price trend."
Lower crop receipts will be a contributing factor to the projected net farm income decrease. Crop receipts are expected to decrease by $15.6 billion (7.9%) in 2015, led by a projected $6.7-billion decline in corn receipts and a $3.4-billion decline in fruit/nut receipts.
Kevin Patrick, USDA Economic Research Service economists, shared that on average livestock receipts are forecast down nearly 5% for 2015, largely due to lower milk prices. Total dairy receipts are forecasted to decrease $11 billion, or 22% in 2015.
The implementation of new programs under the Agricultural Act of 2014 results in a projected 15-percent increase ($1.6 billion) in government payments.
Total production expenses are forecast to increase by $2.5 billion (about 1%) in 2015, extending the upward movement in expenses for a sixth straight year.
Lower energy prices are also expected to give producers a boost, as fertilizer, pesticides and diesel have all become less expensive. In addition, if low energy prices continue, it will have a mitigating effect on food price inflation, particularly for less processed foods.
Stephen Gabriel, chief economist for the Farm Credit Administration, shared, "Although the farm sector is in a strong financial shape, there is the potential for a rough patch." Crop margins are compressing and protein and dairy supplies are growing.
Gabriel added a strong dollar is also hurting exports. Higher long-term interest rates will depress land values, so he cautioned to keep an eye on inflation.
The good news, Gabriel said, is he doesn't expect a farmland "bust" but a correction is already in the process of going into effect. Johansson also shared that overall farmland values are projected to decline by less than 1%, but there are some regions which will see increases and others with greater declines.