Farm Business * Net Cash Farm Income Forecast To Decline Slightly in 2016
Errata: Corrections made on May 2, 2016 to the Agricultural Resource Management Survey (see Update and Revision History) resulted in revisions to average net cash farm income per farm business reported here and in the linked report, for the years 2012-2016F. The revisions also had minor implications for the classification of farm businesses. Farm sector-level data and analysis were not affected.
Average net cash farm income (NCFI) is forecast at $94,000 for farm businesses* in 2016, down less than 0.5 percent from 2015 (see table on farm business average net cash farm income). This compares with a forecast 2.5-percent decline in sectorwide NCFI, a measure that includes all farms.
NCFI represents the amount of cash available to pay down debt, pay family living expenses, and make new investments. It is not a comprehensive measure of profitability, however, since it does not account for noncash income changes, including adjustments in farm inventory, accounts payable, accounts receivable, and capital consumption.
- The 2016 decline in NCFI is slight compared to the 22-percent decline forecast for 2015. Most farm businesses that specialize in livestock are forecast to undergo declines in average NCFI in 2016 while most farms specializing in crops are forecast to have increased NCFI.
- Farm businesses are expected to see reduced costs for many major expense categories, including feed, fuel, and fertilizer. Cash expenses are expected to decrease about 1 percent, on average, in 2016.
Net Cash Farm Income Up for Most Crop Farms, Down for Most Livestock Farms in 2016
After a significantly lower NCFI forecast in 2015 due to lower prices, NCFI for farm businesses specializing in farm program crops is expected to bounce back in 2016, increasing by between 2 and 22 percent, though still not recovering to previous levels. In contrast to program commodities, average NCFI for specialty crop farm businesses (fruits, vegetables, and nursery/greenhouse) is forecast to decrease 4.5 percent in 2016, following a forecast 6.5-percent increase in 2015. Specialty crop receipts are forecast to decrease by about 2 percent in 2016, while total cash expenses are forecast to remain mostly unchanged from 2015.
Average NCFI forecasts for most farm businesses specializing in livestock production are expected to decline in 2016 with dairy farms showing the greatest reductions. Record milk prices led to the historic high cash income recorded in 2014 for farm businesses specializing in dairy; however, their average NCFI is expected to decline significantly to $71,500, or 31 percent below the 2015 forecast value of $102,900 (which represented a 70-percent drop from 2014). Incomes are under pressure from lower dairy prices, with only minimal relief from lower expenses. On hog farms, consecutive yearly declines in hog and crop receipts, coupled with inventory being rebuilt after the Porcine Epidemic Diarrhea Virus (PEDv), led to a forecast decline in NCFI of 3 percent in 2016. For poultry and egg farm businesses, lower prices affected overall cash receipts and drove the average NCFI forecast down 2 percent from 2015. Cattle and calf farm businesses are the sole livestock specialties forecast to see an increase (3 percent) in their average NCFI as lower expected cash receipts (down 4 percent) in 2016 are more than offset by lower feed and livestock purchase expenses.
Average Farm Business Income a Mixed Bag Regionally in 2016
Regional performance varies considerably due to the strong geographic concentration of certain production specialties. Of the nine resource regions (see ERS resource regions), four are expected to show declines in NCFI, with the other regions forecast to have higher NCFI in 2016.
- Farm businesses in the Basin and Range are forecast to experience a 2-percent decrease in average NCFI, as increases on wheat and grain farms are more than offset by reductions on dairy farms in the region. For farm businesses in the Prairie Gateway, higher expected government payments and lower expenses more than compensate for slightly lower cash receipts, resulting in a forecast 6.6-percent increase in average NCFI.
- In the Northern Great Plains, expected NCFI increases for the region’s combination of mixed grain, wheat, and corn contribute to an expected 2.4-percent increase in average NCFI.
Mississippi Portal NCFI is forecast to increase by 7 percent in 2016, based on regional specialization in cotton/rice, soybeans, peanuts, and mixed grains, all of which are expected to have higher NCFI in 2016.
Heartland farm businesses are little changed overall, as expected NCFI declines for hog and dairy farm businesses combine with forecast increases in NCFI for corn and soybean businesses to result in no change in average NCFI for 2016.
- NCFI for the Eastern Uplands and Southern Seaboard is forecast to be up by about 2 percent as both regions benefit from lower cash expenses.
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- Dairy’s forecast performance for 2016 is expected to affect many regions, with a forecast 9.4-percent decrease in average NCFI for the Northern Crescent (the largest percentage decline across regions) and a 4.2-percent decline for the Fruitful Rim. If realized, 2016 will be the second consecutive year that the Northern Crescent has undergone the largest regional decline in NCFI.
*Farm businesses are defined as operations with gross cash farm income of over $350,000 (labeled "commercial") or smaller operations where farming is reported as the operator's primary occupation (labeled "intermediate"). Approximately 11 percent of U.S. farms are commercial and 30 percent are intermediate. "Residence farms" comprise the remaining 59 percent of operations. These are small farms operated by those whose primary occupation is something other than farming.