Thursday, October 1, 2015

Farmer Income Will Take A Hit

Another problem we can add to America's list of woes is that low grain prices will make things a little more difficult for America's heartland this year. While the number of people employed on farms has declined over the decades farming is still a big business and has a huge impact on many communities. The money flowing into local businesses as farmers sell their crops is evident in everything from truck sales to the little things common in everyday life such as dining out or getting a haircut. Because of several years of record harvests across the world a haircut in farm income is what farmers will see this year. Farm income in the U.S. is expected to drop by as much as 36 percent this year. The decline in U.S. farm income in 2015 looks like it will be worse than originally projected.

Farm Income Will See A Major Decline
"Both net cash and net farm income for farms are forecast to decline for the second consecutive year after reaching recent historic highs in 2013," said the U.S. Department of Agriculture. Both net cash and net farm income will drop to a point representing the lowest farm income since 2006, According to USDA, net farm income is forecast to be $58.3 billion in 2015, down 36% from 2014's estimate of $91.1 billion. That's far worse than the government's February outlook, which had projected 2015's farm income would be $73.6 billion, or down nearly 32% year-over-year.

In a research note J.P. Morgan analyst Ann Duignan said, "Overall, the data confirms the deteriorating fundamentals in the farm economy." She went on to say "After several years of improvement, farm financial risk indicators such as the debt-to-asset ratio are expected to increase in 2015, indicating increasing financial pressure on the sector." While people are busy to note the government said the 2015 forecast for farm income would be the lowest since 2006 in inflation-adjusted terms it would be the lowest since 2002. This represents a drop of nearly 53 percent from the record high of $123.7 billion achieved in 2013. USDA forecast crop receipts will decline 6% to $12.9 billion for the year, led by a projected $7.1 billion drop in corn receipts. It forecast livestock receipts will fall by 9% to $19.4 billion, largely due to lower milk and hog prices.

A disparity always exist between the net cash income and farm income based on what numbers are used and whether you are working from production numbers or the price received when the farmer sells if he puts his crops in storage. This means declines are also being reflected in the sale of carryover stocks. The USDA's net farm income projections include only earnings from production that occurred in calendar 2015. UBS Securities analyst Steven Fisher noted the "close relationship between cash receipts and high-horsepower equipment sales." Using the government's forecast, he said it "suggests high-horsepower retail sales may decline 15.1 percent in 2015."  He added, "That said, the strength in the cycle in recent years may cause the high-horsepower decline to be worse than the correlation suggests, and equipment declines have been more than twice as steep as the declines in cash receipts in 3 of the past 4 downturns. We expect double-digit declines in ag equipment sales over the next 12 months."

The USDA's farm income forecasts are released three times a year. The next forecast is scheduled to be released November 24. While little noticed by the average person living on the coast or in one of our many large cities this is a big deal, as mentioned earlier in this article farm income is not contained in a closed loop but spills into other parts of the economy. We have known for years America exports grain all over the world. This means low grain prices coupled with a strong dollar will contribute to America's economic headwind and most likely add to our massive trade deficit. Many areas in the heartland of America have not experienced the benefits showered upon Wall Street, because of this we should not be surprised if the gloom covering many areas of the country does not lift anytime soon.

1 comment:

  1. The whole world is entering a down turn.