Forecasting a decline in farm income in 2016

Farm income, assets, and equity are all expected to decline nearly 3% in 2016, while farm debt is forecasted to rise about 2%.

But these numbers may not tell the whole story.

AAEA member Ani Katchova, Associate Professor and Ohio State’s Farm Income Enhancement Chair, recently met with Senator Pat Roberts, Chairman of the Senate Committee on Agriculture, Nutrition, and Forestry. The meeting was part of a day on Capitol Hill focused on “Dynamics of farm profitability: Factors influencing the decline in income.”

“I felt honored to have the opportunity to share information and present at the Capitol Hill briefing,” Katchova said.

AUDIO: The Ohio Ag Net’s Ty Higgins visited with Katchova about her recent trip to Washington.

During the briefing, Katchova presented an analysis of data from USDA ERS’ February agricultural forecast. Reflecting on declining farm incomes, Katchova noted:

  • In 2016, net cash farm income is anticipated to decline by 2.5%
  • Net farm income is anticipated to decline by 3% between 2015 and 2016.
  • Also in 2016, farm assets are expected to decline by 1.6%, farm equity by 2.2%, and farm debt is anticipated to grow by 2.3%

However, despite these tensions in the marketplace, Katchova noted that there is hope.

“Even with two years of forecasted decline, the farm sector balance sheet is very strong with solvency ratios for the agricultural sector that are near historic lows,” she said.

Additionally, she reflected on farmland values and rents in her briefing using an analysis of data from USDA’s Land Values Summaries. Highlights included:

  • U.S. cropland values increased by a modest rate of 0.7% in 2015
  • U.S. cropland cash rents increased by 2.4% in 2015.
  • Regionally, while Ohio experienced an increase of 3.5% in cropland values in 2015 and 3.6% increase in cash rents in 2015, several other states in the Corn Belt experienced declines. Regarding this discrepancy, Katchova noted that one explanation is that rental contracts are typically not negotiated every year and farmers may not be willing to lose control of their rented acres.

At the briefing, Katchova also presented her research with Mary Ahearn from USDA ERS on the land needs of beginning and young farmers. They have found that these groups own less farmland than their established counterparts and current low farm income rates may be impacting them greatly.

“Not only do beginning and young farmers need to pay land rents and debt payments on real estate, but they also need to grow as they establish their operations, which puts additional pressure on their declining farm income,” she said.

At the briefing Katchova also noted that farm financial ratios, measuring liquidity, profitability, and solvency have all worsened in the last two to three years, but they are still among the highest in the last decade.

“Overall, the ag sector is coming down from historic highs but is currently in a strong position, with only a limited number of farmers experiencing financial distress,” she said.

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