Net Farm Income to Rebound in 2019 as Farmers Pare Expenses

After hitting a pothole in 2018, U.S. net farm income will recover this year under the combined effects of financial belt-tightening and rising crop prices, said the USDA on Thursday. It projected net farm income of $77.6 billion in 2019, which would be the highest total since the commodity boom collapsed in 2014.

USDA economists project that income will fluctuate slightly in coming years, never dropping below $75.5 billion but not topping $80 billion annually in the decade ending in 2028. Net farm income is a measure of wealth and includes the value of commodities held in storage.

The higher per-bushel prices for grains and soybeans projected for 2019 in the USDA's long-term agricultural baseline carry a double benefit — higher revenues on the sale of corn, soybeans, wheat, and other grains, as well as an increased value for a farm's inventory waiting for sale.

Growers will trim their expenses by $7 billion or more this year from the $369 billion spent in 2018, said the USDA. Oil prices are projected to fall and inflation to remain low, according to USDA projections. Interest rates are nudging upward, and GDP growth, while strong, is expected to slow from 2018's pace. The so-called Trump tariff payments, formally the Market Facilitation Program, will boost farm receipts by several billion dollars between 2018 and 2019.

Ordinarily, the USDA releases a full-blown farm income forecast in early February that includes detailed explanations of shifts in each element of farm income, but this year's forecast has been delayed until March 6 because of the 35-day partial government shutdown. Instead, the USDA released the bare-bones balance sheet of likely revenue, expenses, and income that appears in its 10-year baseline.

Net farm income was a dismal $66.3 billion last year, trailing only 2016's $61.5 billion as the lowest since 2006, when the commodity boom was taking root. Income was constrained in 2018 by the effect on prices of the trade war as well as by huge corn and soybean stockpiles. In its baseline, the USDA projects higher market prices for most crops this year. For example, the corn crop could be worth $58 billion, which would be an increase of $6 billion from the 2018 harvest, due to a 40¢-a-bushel increase in the farm-gate price and a 3% increase in plantings.

Nearly six of 10 ag bankers in the Central Plains said farmers scaled back on big-ticket capital expenditures — such as machinery, buildings, and land improvements — in the final months of 2018, said the Kansas City Federal Reserve, reporting on a quarterly poll of lenders. Three out of 10 bankers said farm household spending was down. According to bankers polled by the regional Fed, farm income in the fourth quarter declined for the sixth consecutive year, and income was expected to remain weak through the winter.

The Chicago Federal Reserve said its survey of lenders found that they expect lower capital expenditures by farmers in 2019 compared to 2018. Some bankers said rising interest rates were contributing to the small, but growing, number of operators having trouble repaying loans.

"Somewhat surprisingly, at the start of 2019, survey respondents indicated that only 2.4% (a bit lower than a year ago) of their farm customers with operating credit in the year just past were not likely to qualify for new operating credit in the year ahead," said the Chicago Fed in its quarterly AgLetter. Record-high crop yields in Illinois and Indiana helped generate revenue for farmers, said the regional Fed.

To see the USDA's long-term baseline, click here.