Finances 2016 Outlook By Ryan Kuhns and Kevin Patrick March 16, - - PowerPoint PPT Presentation

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Finances 2016 Outlook By Ryan Kuhns and Kevin Patrick March 16, - - PowerPoint PPT Presentation

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Farm Sector Income & Finances 2016 Outlook By Ryan Kuhns and Kevin Patrick March 16, 2016 Background The Economic Research Service forecasts the farm sectors income statement and balance sheet Last released February 9 th Includes 2015

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Farm Sector Income & Finances 2016 Outlook

By Ryan Kuhns and Kevin Patrick

March 16, 2016

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Background The Economic Research Service forecasts the farm sector’s income statement and balance sheet Last released February 9th Includes 2015 and 2016 forecasts of:

– Income statement – Balance sheet – Financial metrics – Farm business-level outlook

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Net cash income (NCI) forecast down 2.5% in 2016

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Crop receipts drive the expected decline in NCI from 2013 to 2016

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2016F crop receipts significantly lower than 2013, but flat from 2015

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Animal receipts are also expected to fall for most categories in 2016

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Government payments are forecast to rise over 30 percent in 2016

2 4 6 8 10 12 14 2009 2010 2011 2012 2013 2014 2015F 2016F

$ billion

F= Forecast. Source: USDA, Economic Research Service, Farm Income and Wealth Statistics using FSA, NRCS, and CCC data. Data as of February 9, 2016.

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PLC, ARC, ACRE, counter-cyclical payments, and other programs where payments vary with market prices. Disaster relief payments, tobacco transition payments, dairy program payments, and conservation payments. Fixed direct payments and cotton transition payments.

Fixed payments Crop price based payments All other payments

Government payments based on price are a larger share in 2016

2 4 6 8 10 12 14 2009 2010 2011 2012 2013 2014 2015F 2016F

$ billion

F= Forecast. Source: USDA, Economic Research Service, Farm Income and Wealth Statistics using FSA, NRCS, and CCC data. Data as of February 9, 2016.

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Cash expenses are expected to decline for the second consecutive year

320 339 328 325 50 100 150 200 250 300 350 400 2009 2010 2011 2012 2013 2014 2015F 2016F

$ Billion

F = forecast. Source: USDA, Economic Research Service, Farm Income and Wealth Statistics. Data as of February 9, 2016.

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2014F 2015F

Feed, fuel, fertilizer, and livestock expenses drive decline in 2016

10 20 30 40 50 60 Feed Livestock & poultry Fertilizer Fuels & Oils Pesticides Labor Net rent Seeds Interest Property taxes/fees

$ billion

2015F 2016F

F = forecast Source: USDA, Economic Research Service, Farm Income and Wealth Statistics. Data as of February 9, 2016.

Decreased Increased

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2014F 2015F

Since our first 2015 forecast the outlook for crop receipts improved, and animal and product receipts declined

93.2 8.7

  • 13.4

6.5 3.7

  • 1.8

89.4 Net cash income 2015F Crop receipts Animals and products receipts Cash farm- related income Production Expenses Government Payments Net cash income 2015F

All figures are in $ Billion Source: USDA, Economic Research Service, Farm Income and Wealth Statistics. Data as of February 9, 2016.

2015 net cash income forecast increased $3.8 billion from February 2015 to February 2016

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2014F 2015F

Improvement in 2015 crop receipt forecasts largely due to fruits/nuts

47 36 28 23 20 6 47 35 25 30 19 5 5 10 15 20 25 30 35 40 45 50 Corn Soybeans Feed, food, & oil crops* Fruits & nuts Vegetables & melons Cotton $ billion

F= Forecast. * Excluding corn and soybeans. Source: USDA, Economic Research Service, Farm Income and Wealth Statistics. Data as of February 9, 2016.

February 2015 August 2015 November 2015 February 2016

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2014F 2015F

Decline in 2015 animal and product receipt forecasts broad based, but largely due to cattle/calves

February 2015 August 2015 November 2015 February 2016

86 38 32 16 77 35 29 18 10 20 30 40 50 60 70 80 90 100 Cattle and calves Dairy Broilers All other poultry $ billion

F= Forecast Source: USDA, Economic Research Service, Farm Income and Wealth Statistics. Data as of February 9th, 2016.

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Farm Sector Balance Sheet Outlook

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Farm real estate* represents the majority of the sector’s assets

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Forecast drop in net cash income drives lower farm real estate values*

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Drop in 2016F farm real estate assets drive change in total assets

  • 20
  • 15
  • 10
  • 5

5 10 15 20 25 1970 1975 1980 1985 1990 1995 2000 2005 2010 2016F

Percent change

Total assets Real estate assets*

F= Forecast. *Real estate includes the value of land and buildings Source: USDA, Economic Research Service, Farm Income and Wealth Statistics. Data as of February 9, 2016.

1.2% decline in real estate

assets* from 2015F to 2016F

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Farm real estate and nonreal estate debt approaching historic levels

50 100 150 200 1970 1975 1980 1985 1990 1995 2000 2005 2010 2016F

$ billion (2009 Dollars)

F= Forecast. Values are adjusted using the chain-type GDP deflator, 2009=100. Source: USDA, Economic Research Service, Farm Income and Wealth Statistics. Data as of February 9, 2016.

Real estate debt Nonreal estate debt

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But below the late ‘70s – early ‘80s peak in inflation-adjusted terms

50 100 150 200 1970 1975 1980 1985 1990 1995 2000 2005 2010 2016F

$ billion (2009 Dollars)

F= Forecast. Values are adjusted using the chain-type GDP deflator, 2009=100. Source: USDA, Economic Research Service, Farm Income and Wealth Statistics. Data as of February 9, 2016.

Real estate debt Nonreal estate debt

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Farm debt is forecast to grow rapidly from 2013 to 2016

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Leverage increased since 2012, but remains low relative to historic levels

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Rate of return on farm assets (ROA) expected to remain flat in 2016

F = forecast. Source: USDA, Economic Research Service, Farm Income and Wealth Statistics. Data as of February 9, 2016.

0.9 3.7 1.6 3.7 1.0 1 2 3 4 2000 2002 2004 2006 2008 2010 2012 2014 2016F Rate of return on assets from income

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Rate of return on farm assets (ROA) expected to remain flat in 2016

F = forecast. Source: USDA, Economic Research Service, Farm Income and Wealth Statistics. Data as of February 9, 2016.

Decomposing the rate of return on farm assets (ROA)

𝑆𝑃𝐵 = 𝐵𝑡𝑡𝑓𝑢 𝑈𝑣𝑠𝑜𝑝𝑤𝑓𝑠 𝑆𝑏𝑢𝑗𝑝 ∗ 𝑄𝑠𝑝𝑔𝑗𝑢 𝑁𝑏𝑠𝑕𝑗𝑜 𝑆𝑏𝑢𝑗𝑝

Value of production that assets generate Profit margin on value of production

0.9 3.7 1.6 3.7 1.0 1 2 3 4 2000 2002 2004 2006 2008 2010 2012 2014 2016F Rate of return on assets from income

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Rate of return on farm assets (ROA) expected to remain flat in 2016

F = forecast. Source: USDA, Economic Research Service, Farm Income and Wealth Statistics. Data as of February 9, 2016.

Decomposing the rate of return on farm assets (ROA)

𝑆𝑃𝐵 = 𝐵𝑡𝑡𝑓𝑢 𝑈𝑣𝑠𝑜𝑝𝑤𝑓𝑠 𝑆𝑏𝑢𝑗𝑝 ∗ 𝑄𝑠𝑝𝑔𝑗𝑢 𝑁𝑏𝑠𝑕𝑗𝑜 𝑆𝑏𝑢𝑗𝑝

Value of production that assets generate Profit margin on value of production

0.9 3.7 1.6 3.7 1.0 1 2 3 4 2000 2002 2004 2006 2008 2010 2012 2014 2016F Rate of return on assets from income

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Lower profit margins drive decline in ROA from 2013 to 2016

F = forecast. Source: USDA, Economic Research Service, Farm Income and Wealth Statistics. Data as of February 9, 2016.

0.9 3.7 1.6 3.7 1.0 1 2 3 4 2000 2002 2004 2006 2008 2010 2012 2014 2016F Rate of return on assets from income 0.15 0.07 0.19 0.15 0.00 0.05 0.10 0.15 0.20 0.25 2000 2002 2004 2006 2008 2010 2012 2014 2016F Asset Turnover Ratio Operating profit margin ratio

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0.00 0.05 0.10 0.15 0.20 0.25 2000 2002 2004 2006 2008 2010 2012 2014 2016F

Lower profit margin ratio in 2015 and 2016 consistent with other low income years

F = forecast. Source: USDA, Economic Research Service, Farm Income and Wealth Statistics. Data as of February 9, 2016.

Asset Turnover Ratio Operating profit margin ratio

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Farm Business Outlook

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28 Gross cash farm income less than $350,000 and operators report farming as their major

  • ccupation.

Gross cash farm income greater than $350,000 and farms organized as nonfamily corporations or cooperatives. Operators report they are retired or have a major occupation other than farming.

Farm Businesses

Residence Intermediate Commercial

Farm businesses account for 45% of farms, but over 90% of production

Source: 2014 Agricultural Resource Management Survey (ARMS)

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Average net cash income up for most crop farm businesses 1/

2010 2011 2012 2013 2014 2015F 2016F

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Average net cash income expected to fall for most farm businesses specializing in animals and products 1/

2010 2011 2012 2013 2014 2015F 2016F

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All Farm Businesses $87,700 in 2016

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Share of highly leveraged crop farm businesses increased substantially since 2011

F = forecast. Source: USDA, Economic Research Service, Farm Income and Wealth Statistics. Data as of February 9, 2016.

6.1% 5.0% 0% 3% 5% 8% 10% 1996 2000 2004 2008 2012 2016F D/A (41-70) D/A (71 +) Crops Percent of farm businesses

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Share of highly leveraged animal and product farm businesses also trending upward since 2011

F = forecast. Source: USDA, Economic Research Service, Farm Income and Wealth Statistics. Data as of February 9, 2016.

5.4% 3.4% 0% 3% 5% 8% 10% 1996 2000 2004 2008 2012 2016F D/A (41-70) D/A (71 +) Animals and products Percent of farm businesses

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  • Net cash income expected down slightly in 2016, but relatively flat from 2015.
  • Large declines in net cash income since 2013 are driven by lower crop receipts

paired with increasing expenses.

  • Lower income is expected to put modest downward pressure on farm real estate

asset values.

– Changes in farm real estate asset values drive changes in total farm assets.

  • Farm debt, particularly nonreal estate debt, has grown rapidly since 2013.

– Inflation-adjusted debt nearing historic highs, but remains below 1970s-1980s peak.

  • Financial metrics indicate the farm sector remains in good standing.

– An increasing but small group of farms is highly leveraged.

Presentation takeaways

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Additional analysis and data

Farm Sector Income and Wealth Statistics

Data product updated 3 times per year. Next update: August 30th, 2016. Historical State Estimates Historical National Estimates National Forecasts

http://www.ers.usda.gov/data-products/farm-income-and-wealth-statistics.aspx

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Visualizations let you dive into the financials of the farm sector Explore the data

Get to Know Your State Digging into the Farm Balance Sheet Farm Income Atlas

http://www.ers.usda.gov/data-products/farm-income-and-wealth-statistics/data-files-us-and-state-level-farm-income-and-wealth-statistics.aspx

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QUESTIONS?

Ryan Kuhns

RNKuhns@ers.usda.gov

Kevin Patrick

KTPatrick@ers.usda.gov

Farm Income Team

farmincometeam@ers.usda.gov