Outlook for the 2014 U.S. Farm Economy. Kevin Patrick Farm Economy Branch Resource and Rural Economics Division

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1 Outlook for the 214 U.S. Farm Economy Kevin Patrick Farm Economy Branch Resource and Rural Economics Division

2 Overview Net farm income in 214 forecast: $95.8 billion Down more than 25% from 213 Net cash income in 214 forecast: $11.9 billion Down over 2% from 213 Crop receipts are forecast down over 12 percent Elimination of direct payments under the Agricultural Act of 214

3 214 Forecast 214 farm income is forecast based off of the 213 forecast In the next forecast (August 214), 213 will become an estimate The February 214 forecast is based on the most recent forecasts of Commodity demand Crop and livestock inventories Acres planted, yields, and production Input use and costs AND is different from the USDA long-term projections that we formulated in December 213 Several factors that will influence 214 outcomes Actual planting decisions Weather (during planting, growing, and harvesting) Drought conditions in California Outcomes of the Agricultural Act of 214

4 $13.5 Crop receipt forecast driving major changes to net farm income from 213F to 214F $ billion $1.2 $2.3 $3.9 $95.8 -$26.7 -$8.8 -$5.1 -$ F-214F change -$34.7 billion Net farm Crop receipts income 213F Change in crop inventory Livestock receipts Change in livestock inventory Production Expenses Government Payments All other changes Net farm income 214F Source: Economic Research Service, USDA. F= forecast.

5 Income measures remain high despite declines Inflation-adjusted net farm income and net cash income, F 1/ $ billion Net cash income Net farm income Net cash income $11.9 Net farm income $95.8 1/ The GDP chain-type price index is used to convert the current-dollar statistics to real (inflation adjusted) amounts (29=1). Source: Economic Research Service, USDA. F= forecast.

6 $ billion Crop receipts are forecast to decline 12.4 percent in 214 Receipts for selected crops, F Corn Soybeans Fruits and tree nuts Vegetables and melons Wheat Cotton F214F Source: USDA, ERS Note: 213, 214 forecasts

7 $ billion Total livestock receipts are forecast up 1 percent in 214 Receipts for selected livestock products, F Cattle and calves Dairy Broilers Hogs F214F Source: USDA, ERS Note: 213, 214 forecasts

8 $ billion(29) 3 Real cash expenses expected to decline for the first time since 29 Inflation-adjusted 1/ cash expenses, F Trend: % per yr. Cash expenses Trend: F 4.1% per yr / The GDP chain-type price index is used to convert current-dollar amounts to real (inflation adjusted) amounts (29= 1). Source: USDA, ERS Note: 213, 214 forecasts

9 Production expenses forecast down $4 billion led by lower feed expenses Changes in expense items, 213F - 214F -11.3% $ billion % 4 -.6% 7.8% -1.2% 1.% 1.1% 1.5% 6.5% -12.% F 214F Note: Percent change from 213 to 214 is indicated at the top of each set of bars. Source: USDA, ERS Note: 213, 214 forecasts

10 $ billion 25 2 Government payments forecast down in 214 to $6.1 billion All other payments 1/ Conservation payments Function of crop price payments 2/ Direct payments & CTP 3/ F 214F 1/All other payments include disaster relief payments, tobacco transition payments, and dairy program payments. 2/ Counter-cyclical payments, loan deficiency payments, marketing loan gains, certificate exchange gains, ACRE payments, ARC, and PLC program payments vary with crop prices. 3/ Direct payments and Cotton Transition payments (CTP) are fixed by legislation Source: FSA, NRCS, and CCC Note: 213, 214 forecasts

11 Inflation-adjusted asset values expected to set new record in 214 Inflation-adjusted farm sector assets, debt and equity, F $ trillion Debt Assets Debt Equity 1/ The GDP chain-type price index is used to convert current-dollar amounts to real (inflation adjusted) amounts (29 = 1). Source: USDA, ERS Note: 213, 214 forecasts

12 Farm affordability Farm real estate values, F $ trillions Actual real estate value.5 Real estate value that current income and interest rates can support F

13 Debt to asset and debt to equity ratios forecast to continue downward trend in 214 Farm debt ratios, F Percent 3 25 Debt to equity ratio Debt to asset ratio Source: USDA, ERS Note: 213, 214 forecasts

14 Farm businesses represent over 95, farms and account for over 9 percent of production Percent ,26, , Farms Production Assets Debt operators report they are retired or have a major occupation other than farming. Gross cash farm income less than $35, and operators report farming as their major occupation. Farm Businesses Residence Intermediate Commercial Gross cash farm income greater than $35, and farms organized as nonfamily corporations or cooperatives. Source: 212 Agricultural Resource Management Survey (ARMS)

15 Lower average net cash income is forecast for farm businesses that specialize in crop production in 214 Average net cash income for crop farm businesses 1/ $ thousand P 213F 214F Cotton and rice Specialty crops Corn Mixed grain Soybeans and peanuts Wheat 1/ The farm level forecasts are derived from partial budget modeling on the 212Agricultural Resource Management Survey (ARMS) using parameters from 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 Source: USDA, ARMS Note: 213, 214 forecasts

16 214 Forecasts up for dairy and poultry farm businesses Average net cash income for livestock farm businesses $ thousand P 213F 214F Hogs Dairy Poultry Beef cattle 1/ The farm level forecasts are derived from partial budget modeling on the 212 Agricultural Resource Management Survey (ARMS) using parameters from 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 Source: USDA, ERS Note: 213, 214 forecasts

17 Average net cash incomes are forecast down for farm businesses in all regions in 214 relative to 213 Fruitful Rim -12.6% Northern Great Plains -31.3% Northern Crescent -1.9% Basin and Range -21.7% Prairie Gateway -24.4% Heartland -31.4% Eastern Uplands -1.1% Southern Seaboard -16.8% Percent Change -5 to to to -35 Fruitful Rim -12.6% Mississippi Portal -3.5% Fruitful Rim -12.6% Source: ERS partial model based using the 212 Agricultural Resource Management Survey (ARMS) and parameters from 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. 212 ARMS data is preliminary.

18 $13.5 Crop receipt forecast driving major changes to net farm income from 213F to 214F $ billion $1.2 $2.3 $3.9 $95.8 -$26.7 -$8.8 -$5.1 -$ F-214F change -$34.7 billion Net farm Crop receipts income 213F Change in crop inventory Livestock receipts Change in livestock inventory Production Expenses Government Payments All other changes Net farm income 214F Source: Economic Research Service, USDA. F= forecast.

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