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U.S. Department of Agriculture Forecast a Drop in Profit
February 10, 2016

The U.S. Department of Agriculture forecast that farmers will face a drop in profit for the third straight year as persistent surpluses depress crop and livestock prices.

Farm net income will be $54.8 billion in 2016, the USDA said Tuesday in are report Ā HERE on its website, 2.8 percent less than the $56.4 billion estimated for 2015.

The hard times follow an era of record profit that peaked at $123.3 billion in 2013, when rising global demand combined with a domestic drought that crimped supplies of corn and cattle, while a virus devastated hog herds.Ā  Direct government farm-program payments are forecast to rise 31 percent to $13.9 billion in 2016 with the 2014 Farm Billā€™s price-loss and risk coverage accounting for almost two-thirds of the total.

U.S. farm expenses will fall 1 percent to $376.5 billion this year, the first consecutive annual decline since 1986. ā€˜The drop in expenses is expected to alleviate, but not completely offset, the drop in cash receipts, and ultimately lead to tighter margins,ā€ the USDA said in a report.

Surplus Cycle

The 2013 boom spurred farmers to boost crop and livestock production, triggering a cycle for surpluses in major agricultural commodities at the same time, David Anderson, a livestock economist at Texas A&M University in College Station, said in a telephone interview. Farmland values have dropped from all-time highs.

The U.S. farm debt-to-equity ratio will rise for a fourth straight year,Ā indicating ā€œa higher level of financial stress is buildingā€ relative to recentĀ years, the USDA said. This measure ā€œremains low relative toĀ historical levels,ā€ indicating the industry is ā€œinsulated from solvency riskĀ associated with declining commodity pricesā€ and swings in farm-assetĀ values, the agency said.

Some farmers will work through supply gluts faster than others, with chicken and dairy cattle possibly seeing some price improvement later in the year, Anderson of Texas A&M said. For crops, only a major improvement in trade, or a weather disaster, will soak up supplies in the near term, said Patrick Westhoff, an agricultural economist at the University of Missouri in Columbia.

ā€œFor years, we saw rising ethanol demand and Chinese growth as sources for profit,ā€ he said in a telephone interview. ā€œEthanol growth is behind us, and China is cloudy. Itā€™s hard to see much that will significantly increase profit going forward.ā€

Source – Dairy Today


Summer 2018