Farm income seen falling 36% in 2015

Three farm tractors in a freshly cut cornfield near Visalia, California.
Mardis Coers | Getty Images

U.S. farm income is forecast to decline 36 percent in 2015, worse than originally projected—and representing the lowest farm income since 2006, according to the government.

"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.

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.

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"Overall, the data confirms the deteriorating fundamentals in the farm economy," J.P. Morgan analyst Ann Duignan said in a research note. "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."

The government said the 2015 forecast for farm income would be the lowest since 2006 (since 2002 in inflation-adjusted terms) and a drop of nearly 53 percent from the record high of $123.7 billion achieved in 2013.

USDA forecast crop receipts would decline 6% to $12.9 billion for the year, led by a projected $7.1 billion decline in corn receipts. It forecast livestock receipts would decline by 9% to $19.4 billion, largely due to lower milk and hog prices.

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Overall, farm net cash income is forecast at $100.3 billion, or down about 21 percent from 2014 level. But that's actually a slight improvement from the February outlook, which had net cash income projected at $89.4 billion, or down 22 percent.

The disparity between the net cash income and farm income declines reflected the sale of carryover stocks in 2014. The USDA's net farm income projections include only earnings from production that occurred in calendar 2015.

UBS Securities analyst Steven Fisher said in a research note Tuesday that there's a "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."

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Added Fisher, "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.

Down on the farm