The USDA has released another Ag Barometer forecast, and there have been a few different spins of the results. Some are saying the barometer is holding fairly steady, others are focusing more on the negative aspects. Don’t be fooled by the Ag Barometer headlines. Here’s our coverage of four articles on the topic from Brownfield Ag News, Feedstuffs and Beef Magazine. There aren’t any fantastically good predictions, but it’s not as bad as it could have been.
Net Farm Incomes Down
Nicole Heslip of Brownfield Ag News says that according to the latest USDA forecast, net farm incomes are predicted to be 12% lower next year. It’s not good news, but it’s actually an improvement from what many had been predicting. Brownfield’s Chief Economist Rob Johansson says that’s because of payments from the Market Facilitation Program. However, production costs are still rising. Johansson says they’re up $14.8 billion from last year. Farmers are also probably starting to feel more financial pressure because the farm debt to asset values are also increasing a bit.
Krissa Welshans of Feedstuffs argues that the USDA’s Ag Barometer has held fairly steady. The November USDA Ag Barometer reading is performed by Purdue University and the CME Group. Four hundred agricultural producers are surveyed from across the country. November’s barometer was 134- which is only 1% lower than October’s barometer.
The barometer has two sub-indices. The Index of Current Conditions held at 115, and the Index of Future Expectations dropped three points to 143.
Farmers Might Be More Confident
James Mintert is the barometer’s principal investigator and director of Purdue University’s Center for Commercial Agriculture. He says that there are indications that farmers are becoming a little more confident about the future of the Ag economy. Proof is in farmers’ willingness to make large farm investments. The monthly barometer asks whether or not now is a “good time” or a “bad time” to make large farm investments. September’s index read 42, October’s read 52, and November’s read 56. So, it’s trending up.
Mintert also says that producers also seem to be feeling more positive about farmland values. Fifty percent of respondents in November expect higher farmland values over the next 5 years. In October only 21% of respondents expected higher farmland values.
The November barometer showed that producers are not anticipating improvements in profitability. Only 13% expect farm profitability to improve over the next year. 44% also anticipate farm equity to decrease through 2019. 85% of respondents expect interest rates to rise next year, and 76% expect to see an interest rate rise in the next 5 months.
Breakdown of USDA Preditions
Jacqui Fatka of Beef Magazine discloses additional results from the USDA’s November barometer. In 2018, farm sector net cash income is expected to drop 8.4% to $8.5 billion. That’s the lowest level since 2009. Net cash income is calculated by factoring together farm-related income versus cash expenses. This is different from net farm income, which also factors in non-cash items like inventories, depreciation, and rental income of operator dwellings. As mentioned above, the USDA is predicting a 12% drop in net farm income.
Every region across the country is predicted to see farm business average net cash farm income declines. Dairy farms will be hit the hardest. As a whole, farm cash receipts are anticipated to increase nearly 1% to $374.8 billion. Here’s the breakdown of receipts with the most significant changes.
- Crop receipts- Up 1.5% from last year.
- Corn cash receipts- Up 4.1%
- Soybean cash receipts- Up 4.6%
- Cash receipts poultry/eggs- Up 9.5%
- Milk cash receipts- Down 7.1%
- Meat animal cash receipts- Down 2.3%
- Cash receipts for cattle and calves- Down 1.4%
- Hog cash receipts- Down 5.2%
- Broiler receipts- Up 7.2%
- Chicken egg receipts- Up 37.9% due to higher quantity sold at higher prices
Total production expenses are predicted to rise 4.2%. Below is a listing of changes compared to last year.
- Oil and fuel- Up 18.7%
- Interest- Up 18.1%
- Hired labor- Up 5.7%
- Feed expenses- Up 5.6%
- Fertilizer and soil treatments- Down 1.3%
Farm equity is anticipated to rise 1%, and farm assets are predicted to go up 1.4%. But after adjusting for inflation, equity and assets are both predicted to decline. Farm debt is anticipated to increase 4.2%, and the debt-to-asset ratio is only increasing slightly. Working capital is predicted to decline 31% from last year.
Restoring Farm Prosperity
We might all agree that these USDA predictions aren’t at all that unexpected. As it turns out, the numbers aren’t quite as bad as they could have been. But still, net farm incomes are anticipated to drop. Richard Guebert, the president of the Illinois Farm Bureau, says that this issue will be the main focus of the annual meeting in Chicago. Julie Harker of Brownfield Ag News spoke with him recently in an interview.
“We’re going to have a sense of the delegate resolution that talks about the farm profitability and where we need to go from here and try to get it back to a state of prosperity.”
Guebert’s also very pleased with the latest developments with the Farm Bill, and the signing of the USMCA. In addition, any kind of trade truce with China would be extremely beneficial for farmers. They need relief from debt loads over the last six years, and farm equity is “eroding at warp speed.”
It’s easy to put a lot of weight into these types of predictions, and farmers should be cautious about taking them too much to heart. Everything is changing really quickly these days. Nevertheless, it’s good to get a feel for what other producers are thinking and feeling. Net farm income is predicted to go down, but that isn’t at all unexpected right now. It’s anyone’s guess what the USDA barometer will say come January.