American Agriculture Faces Headwindsin 2014, says USDA
The American farm economy will face “headwinds” in 2014, according to a report by the American Bankers Association (ABA). It quotes the USDA as projecting net farm cash income of $101.9 billion in 2014, down nearly 22% from 2013. The expected decline will be driven by lower crop cash receipts, a change in the value of crop inventories, and reduced government farm payments, the report said.
The USDA estimates that crop receipts will fall by more than 12% percent in 2014, and the average prices for corn, wheat, soybean, cotton, vegetables and melons also will decline. U.S. corn production is expected to increase as farmers continue to recover from the 2012 drought, which will cause sales receipts and inventory value to decline.
Furthermore, wheat and cotton producers will see increased competition from abroad, thus pushing down expected annual prices.
On a positive note, livestock and dairy sales are forecasted to increase by 0.7% percent this year as increasing dairy receipts more than offset declines in hog and egg receipts. Receipts for cattle and calves are expected to remain stable.
Reduced government farm payments contribute to lower projected net farm cash income in 2014. Government payments to producers are expected to decline 45.4% from 2013, primarily due to the elimination of direct payments under the Agricultural Act of 2014 (Farm Bill) and to uncertainty regarding enrollment and payments. However, this may be offset by higher payments in 2015.
The USDA expects farm production expenses to decrease by $3.9 billion in 2014 but still remain above the nominal 2012 level. The agency also anticipates that total production expenses will constitute 78% of gross farm income in 2014, up from 73% in 2013, indicating a return to tighter margins.
We may see a higher-than-projected increase in farm real estate debt as banks try to help their customers by restructuring short-term debt over longer terms, the ABA report indicates. On the other hand, the expected decline in production expenses—particularly production inputs—could reduce the need for debt financing.