Source: USDA ECONOMIC RESEARCH SERVICE, 8/7/17



Highlights:
• Farm sector net cash income is expected to decline 35 percent between 2013 and 2016, following several years of record highs—though it will remain near its recent 10-year average.
• Starting in the late 1990s, the median household income for farm households has exceeded the median income of all U.S. households; in 2015, farm households had a median total household income of $76,735, a third greater than that of all U.S. households but less than that of U.S. households with a self-employed head.
• Federal Government payments—including disaster assistance programs and commodity program payments—are expected to be about $13 billion in 2016, and buffer swings in farm income.

The U.S. farm sector represents about 2.1 million farms. Together, these farms operate more than 900 million acres and support more than 6 million people living in the associated farm households. This article discusses the long-term trends in farm sector and farm household income, and includes estimates for 2016. (As of the publication date, ERS does not yet have all the data relevant to 2016 farm activity; until that data are available in late 2017, ERS is “forecasting” 2016 net cash farm income.)
Assessing the financial well-being of the farm sector as a whole can be challenging due to the diversity of farms that make up the sector. Farms vary by location, size, commodities produced, and many other characteristics. For that reason, trends for the farm sector can differ from trends experienced on individual farms. This article takes a long-term perspective, and examines net cash income as an indicator of farm profitability, reviewing recent trends and the major factors contributing to them.

Farm Sector Net Cash Income Down in 2015 and 2016 From Record Highs
Farm sector net cash income is equal to all of the farm and farm-related revenue received (gross cash income) minus any cash expenses paid during the year. Net cash income for the farm sector was relatively stable through the 2000s. But, since 2009, the U.S. farm sector has experienced more volatility.

Beginning in 2010, farm sector net cash income rose to record highs, peaking in 2012 and 2013. Factors affecting both the demand and supply for agricultural commodities led to this growth. Demand for corn and other grains and oilseeds increased with implementation of Federal bioenergy policies; corn is the primary feedstock for ethanol production. High overall demand for agricultural commodities, alongside high prices, and a resulting increase in U.S. agricultural exports by more than $45 billion contributed to a $61-billion rise in the sector’s net cash income from 2009 to 2013. Global markets and trade expanded greatly due to strong income growth in developing countries. For example, U.S. soybean exports rose steadily from 2011 to 2015—growing over 50 percent during that period—with China accounting for the majority of U.S. exports each year.
Changes to the supply of commodities also drove up prices and, consequently, net cash income. A drought affected the Midwest and Great Plains in 2012, significantly reducing yields for corn and soybeans—and raised prices. More than three-quarters of the domestic cattle inventory was located in drought areas at the height of the 2012 dry spell, as was more than two-thirds of U.S. production and hay acreage. Commodity prices rose to reflect scarcity, benefiting crop farms in regions that did not experience production disruptions—while crop insurance indemnity and disaster assistance aided farms who experienced losses. As a result, farm sector net cash income was actually higher.

Following this period of elevated prices and record high earnings, U.S. farm sector net cash income has fallen sharply. During the 2016 growing season, increased plantings, combined with unseasonably good weather, led to record production and added to large stocks on hand for many major commodities due to multiple consecutive years of high production levels. Slowing global demand, a strengthening dollar, and large inventories depressed crop as well as animal and animal product prices and is expected to contribute to the decline in 2016 net cash income for the farm sector.
After adjusting for inflation, the decline in net cash income from 2013 to the ERS forecast for 2016 would be the largest decline since the 1980s in both absolute ($44 billion) and percentage (35 percent) terms. Prices received by farmers for all major commodities are lower, with many (such as corn, wheat, and milk) down 30 percent or more from highs recorded just a few years earlier. The recent declines in net cash income for the farm sector are large in percentage terms. But, when viewed over a longer time horizon and after adjusting for inflation, net cash income is forecast to return to the levels observed before this record growth. In 2016, net cash income is forecast nearly $4 billion (or about 5 percent) higher than the average net cash income from 2000 to 2009.

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