USDA raised its estimate of 2017 income slightly to $68.8 billion, but said returns for this year would fall to $59.5 billion. Though this is USDA’s first projection for 2018, Farm Futures last year estimated profits could be a little lower than that at $58.8 billion for 2018.
USDA sees both crop and livestock revenues falling slightly in 2018. Total value of farm production would be slightly higher at $409 billion due to an increase in other revenues, such as custom farming and crop insurance. Farm Futures sees crop income lower with livestock producers making more.
USDA sees higher production costs in the coming year, with fuel and fertilizer expenses on the rise. Farm Futures sees even higher costs offsetting better revenues.
Not a debt crisis
Thanks to rising real estate values, USDA sees farm assets continuing to gain value in 2018, offsetting higher debt loads. That could drop the overall farm debt-to-asset ration slightly, to 12.6%. Stable crop land values are keeping the current downturn from becoming a debt crisis like the 1980s. Instead of using leverage to expand, farmers this time around mostly paid cash.
Pinched by payments
Paying higher interest rates on more loans with falling income means interest expenses are eating into net farm income more than at any time since the end of the farm crisis. Still, interest as a percentage of net farm income is well below the astronoic levels of the 1980s.
The current problem for agriculture is low profitability. Profit margins as actually below those seen in the 1980s, though they appear to be stabilzing.
The net worth of U.S. farmers continues to rise thanks to higher asset values. But with profits falling, return on equity remains poor at just over 2%. That’s almost as low as during the 1980s.
USDA says farmers can expect to receive less in government payments, too. ARC program guarantees continue to fall for corn and soybeans just as Congress works to craft a new Farm Bill. Total payments could drop to $9.3 billion, comprising 16% of net farm income.