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Farm income expected lower in 2015

WASHINGTON – This year farm profitability is expected to slide 32 percent from last year’s forecast.

The new information is from USDA’s farm income forecast, and is a significant step down from 2014’s projected net farm income of $108 billion.

“Both measures are down from their recent historic highs in 2012 and 2013,” says USDA Economist Mitch Morehart. “Net farm income is forecast at $73.6 billion, and net cash income for 2015 is forecast at $89.4 billion.”

#Net Cash Income or Net Farm Income?

In fact, the new report brings farm income back in line with levels last seen in 2009, which means the final figure is about 43 percent lower than in 2013. And that’s to say nothing of the decline year-over-year.

“Net cash income is expected to fall about 22.4 percent,” said Morehart, “and net farm income by 31.8 percent.”

The decrease is believed to be due in part to lower crop and livestock receipts and slightly higher production expenses. But inputs aren’t rising across the board; in fact, fuel, oil and fertilizer are expected lower, though livestock, labor, interest and seeds are all forecast slightly higher. Morehart says the net result is about a one percent increase overall on expenses in 2015.

Morehart also expects the value of farmland to fall by one percent, with farm assets likely steady compared to last year. Farmers in 2015 are also expected to take on about three percent more debt, which means farm equity could drop slightly this year. It would be the first time that’s happened since 2009.

Iowa Senator Chuck Grassley was pessimistic about the numbers in a Wednesday conference call with reporters.

“They didn’t look any further ahead,” he explained, “but as long as we keep overproducing, and there’s questions about the expansion of ethanol, because EPA isn’t releasing, well, I shouldn’t say ‘the mandate,’ of how many billion gallons the oil companies have to use, and the fact that exports are down, I think you can even see it continuing beyond 2015.”

Grassley says it’s not hard to believe the numbers, given the current farming environment, though he does expect income will eventually rise.

“Prices will go back up,” said Grassley, “but now, at New Hartford and Shell Rock, where we sell our grain, you know, probably corn is 75 cents to a dollar below the cost of production, and that’s what’s typical of the 32 percent reduction in income “

Farming in Iowa, with just over seven percent of total U.S. farm reciepts, is projected to be a $35.5 billion industry in the coming year.

Gary Crawford with the USDA contributed to this report. To hear more on 2015 farm income, click the audio player above this story.

#Measuring Farm Profitability

According to the Congressional Research Serice, two different indicators measure farm profitability: net cash income and net farm income.

Net cash income compares cash receipts to cash expenses. As such, it is a cash flow measure representing the funds that are available to farm operators to meet family living expenses and make debt payments. For example, crops that are produced and harvested but kept in on-farm storage are not counted in net cash income. Farm output must be sold before it is counted as part of the household’s cash flow.

Net farm income is a value of production measure, indicating the farm operator’s share of the net value added to the national economy within a calendar year, independent of whether it is received in cash or noncash form. As a result, net farm income includes the value of home consumption, changes in inventories, capital replacement, and implicit rent and expenses related to the farm operator’s dwelling that are not reflected in cash transactions. Thus, once a crop is grown and harvested it is included in the farm’s net income calculation, even if it remains in on-farm storage.

•Net cash income is generally less variable than net farm income. Farmers can manage the timing of crop and livestock sales and of the purchase of inputs to stabilize the variability in their net cash income. For example, farmers can hold crops from large harvests to sell in the forthcoming year, when output may be lower and prices higher.

•Off-farm income and crop insurance subsidies, both of which have increased in importance in recent years, are not included in the calculation of aggregate farm income.

•Off-farm income is included in the discussion of farm income at the household level in the last section of this report

Read more on farm income from the CRS by clicking here.