U.S. Farm Income Outlook For 2017

U.S. Farm Income Outlook for 2017USDA’s 2017 Farm Income ForecastAccording to ERS, net farm income is forecast at 63.4 billion in 2017, up 3% from last year(Table 1).3 The forecast rise in 2017 net farm income comes after three consecutive years ofdecline from 2013’s record high of 123.8 billion. The 2017 net farm income forecast issubstantially below the 10-year average of 86.4 billion (Figure 1). In inflation-adjusted dollars,the 2017 forecast is the second lowest since 2003 (Figure 2). Net cash income is also projected tobe up in 2017 but by a larger share (12.5%), driven largely by sales from previous years’inventory, to 100.4 billion. Since the record highs of 2013, net farm income and net cash incomehave fallen by 49% and 26%, respectively (Figure 1).Selected Highlights After three consecutive years of decline, net cash income and net farm incomeare both forecast to rise in 2017 relative to 2016. The downward trend in farmincome since 2013 was primarily a result of the significant decline in most farmcommodity prices since the 2013-2014 period.Farm prices for most feedstuffs—feed grains, hay, and wheat—declined duringboth 2015/16 and 2016/17 as U.S. and global grain stocks rebuild (Table 4 andFigure 28 to Figure 31). In contrast, cotton and soybean prices showedresilience in 2016. The price outlook for 2017 is mixed.Poultry, hog, and milk prices are all projected to be higher in 2017, albeit wellbelow their market highs of 2014/15 (Table 4 and Figure 32 to Figure 35).Cattle prices are projected to be down slightly in 2017.Government payments in 2017 are projected to be down slightly (-0.2%) to 13.0billion (Figure 13). Lower marketing-assistance loan benefits and the end of thecotton ginning cost-share program, which paid 326 million in 2016, more thanoffset projected higher Price Loss Coverage (PLC) and Agriculture RiskCoverage (ARC) program payments of 8.4 billion—triggered by lowercommodity prices. Outlays under the ARC and PLC programs (which arecontingent on market prices) are intended to provide some relief for participatingproducers from the market downturn.Total production expenses (Figure 14), at 355.1 billion, are projected to be up1.3% in 2017, driven largely by replacement animal, labor, and interest costs.U.S. farm prices are supported in part by global demand for U.S. agriculturalexports (Figure 18), which are expected to rise to 139.8 billion ( 8%) in2017—still well below the record of 152.3 billion set in 2014.4Farm asset values are projected to be up, at 3,075 billion ( 4%) in 2017, as landvalues strengthen. A rise in farm debt to 390 billion ( 4.4%) is expected toresult in a rise in the debt-to-asset ratio to 12.7%, the highest level since 2011(Figure 24).3The material presented in the report is drawn primarily from the 2017 Farm Sector Income Forecast of ERS recast.aspx.4ERS, Outlook for U.S. Agricultural Trade, AES-101, August 29, 2017.Congressional Research Service2

U.S. Farm Income Outlook for 2017Figure 1. Annual U.S. Farm Sector Nominal Income, 1940 to 2017FSource: ERS, “2017 Farm Income Forecast,” August 30, 2017. All values are nominal, that is, not adjusted forinflation. 2017 is forecast. All values are nominal.Figure 2. Annual U.S. Farm Sector Inflation-Adjusted Income, 1940 to 2017FSource: ERS, “2017 Farm Income Forecast,” August 30, 2017. All values are adjusted for inflation using thechain-type gross domestic product (GDP) deflator, where 2009 100, Office of Management and Budget (OMB),Historical Tables, Table 10.1, https://www.whitehouse.gov/omb/budget/Historicals; 2017 is forecast.Congressional Research Service3

U.S. Farm Income Outlook for 2017Overview of U.S. Agriculture in 2017Crop OutlookNormal weather conditions prevailed in most U.S. growing regions, with the notable exception ofMontana and the Dakotas, where severe drought impacted the small-grain crops. The northcentral drought expanded in late summer into Idaho, Oregon, and Washington and parts ofsouthern Iowa. As a result of the north-central drought, USDA is forecasting substantially loweryield and output for spring-grown barley and wheat crops in the affected states. Overall, 2017U.S. wheat production is estimated to be down nearly 25% from last year. This productionshortfall, coupled with continued strong export demand for U.S. wheat, is behind an 18% increasein the U.S. wheat farm price during the 2017/18 crop year to 4.60 per bushel—still below the 7.77 achieved in 2012 (Figure 28). Reduced rainfall also appears to have lowered sorghum, oat,and forage-crop prospects in affected regions. However, the effect on the corn and soybean cropsappears minimal.Corn and soybeans are the two largest U.S. commercial crops in terms of both value and quantity.These crops provide important inputs for the domestic livestock, poultry, and biofuels sectors. Inaddition, the United States is traditionally one of the world’s leading exporters of corn, soybeans,and soybean products—vegetable oil and meal. As a result, the outlook for these two crops iscritical to both farm sector profitability and regional economic activity across large swaths of theUnited States as well as in international markets. For the past several years, U.S. corn andsoybean crops have experienced remarkable growth in both productivity and output. Both cropshad record harvests in 2014, above-average harvests in 2015, and record harvests again in 2016,thus helping to build stockpiles at the end of the marketing year (Figure 3 and Figure 4) andpressure prices lower in U.S. and international markets (Figure 28 through Figure 31) in 2017.Planted acres for both feed grains (101.8 million acres) and wheat (45.7 million acres) were downin 2017 by 6.4% and 9.0%, respectively, from 2016. However, soybean-planted acres wereestimated at a record 89.5 million ( 7.3%). The 2017 yield outlook for both corn and soybeancrops is above trend (although down from the previous year’s record highs) for both, withexpectations for the second-highest soybean yield (49.4 bu./ac.) and third-highest corn yield(169.9 bu./ac.) on record. The record soybean plantings coupled with the strong yield outlookcombine for an expected record large soybean harvest of 4.4 billion bushels in 2017. As a resultof the expected record harvest, soybean prices are projected to be lower (-3.2%) at 9.20 perbushel. Despite lower area, yield, and production, U.S. corn supplies are expected to continue tobuild in 2017, thus pushing the expected crop-year price down 4.5% to 3.20/bu. The corn andsoybean price forecasts for 2017 are the lowest since the 2006 crop year for both crops.The length and severity of the California drought has important national implications for retailfood prices. California production accounts for about one-third of U.S. vegetables, almost twothirds of U.S. fruit and nuts, about 20% of U.S. milk, and a substantial portion of wine.5 Abundantprecipitation during the 2016/17 winter has alleviated drought conditions in much of the northernportion of the state. However, the drought, which began in 2012, persists in the lower third of thestate.65See CRS In Focus IF10133, California Drought: Water Supply and Conveyance Issues, by Betsy A. Cody; and CRSReport R44093, California Agricultural Production and Irrigated Water Use, by Renée Johnson and Betsy A. Cody.6See the U.S. Drought Monitor, September 5, 2017, http://droughtmonitor.unl.edu/.Congressional Research Service4

U.S. Farm Income Outlook for 2017Figure 3. U.S. Corn Stocks Relatively Abundant, Price Down in 2017FSource: World Agricultural Outlook Board, USDA, World Agricultural Supply and Demand Estimates, September12, 2017. All values are nominal. Values for 2017 are forecasts.Notes: Stocks-to-Use equals the ratio of season-ending stocks relative to the season’s total usage.Figure 4. U.S. Soybean Stocks-to-Use Share Up, Price Down in 2017FSource: World Agricultural Outlook Board, USDA, World Agricultural Supply and Demand Estimates, September12, 2017. All values are nominal. Values for 2017 are forecasts.Notes: Stocks-to-Use equals the ratio of season-ending stocks relative to the season’s total usage.Congressional Research Service5

U.S. Farm Income Outlook for 2017The effects of hurricanes Harvey and Irma on U.S. agriculture are still being ascertained but havelikely resulted in extensive crop damage. Harvey’s impact focused on Texas and Louisiana.(Affected crops include upland cotton, rice, soybeans, sugar, and others.) Irma’s impact focusedon Florida, Georgia, South Carolina, and Alabama. (Affected crops include citrus, sugar, peanuts,upland cotton, soybeans, and specialty crops.) USDA’s National Agricultural Statistics Service(NASS) announced on September 12, 2017, that it would collect harvested acreage informationfor a number of crops in affected states in preparation for the October Crop Production report.7These additional data will help to better assess the full impact.Livestock OutlookThe changing conditions for the U.S. livestock sector may be tracked by the evolution of theratios of livestock output prices to feed costs (Figure 5). A higher ratio suggests greaterprofitability for producers.8 The cattle-, hog-, and broiler-to-feed margins all moved upwards inthe first half of 2017.9 The hog sector, despite seeing its hog-to-feed ratio dip lower in early 2017,remains profitable. However, continued strong production growth of between 2% and 3% for redmeat and poultry suggests that prices are vulnerable to any weakness in demand.Figure 5. Indexed Farm-Price-to-Feed Ratios for Cattle, Broilers, Milk, and Hogs(Ratio of national average farm price per 100 lbs. of meat to per-unit feed cost. Indexed, 2010 100)Source: USDA, NASS, Agricultural Prices, August 30, 2017. All values are nominal.Notes: Cattle and hog feed cost is 100% corn; broilers feed cost is 58% corn, 42% soybeans; dairy feed cost is amix of corn, soybean meal, and alfalfa hay.7NASS, “NASS to Collect Additional Harvested Acreage Information,” September 12, 17/09 12 2017.php.8Feed costs—at 30% to 80% of variable costs—are generally the largest cost component in livestock operations.9Broilers are chickens raised for meat and contrasts with layers, which are chickens retained for egg production.Congressional Research Service6

U.S. Farm Income Outlook for 2017Milk prices and the milk-to-feed ratio turned sharply higher in 2017, suggesting improvingprofitability. However, this result varies widely across the United States with many small ormarginally profitable producers facing continued financial difficulties. In addition, both U.S. andglobal milk production are projected to continue growing through 2017. As a result, milk pricescould come under further pressure in the last half of 2017. With respect to the federal milk marginprotection program (MPP) instituted by the 2014 farm bill (Agricultural Act of 2014, P.L. 11379), the formula-based milk-to-feed margin used to determine government payments is likely toremain above the 8.00 per hundredweight (cwt.) threshold needed to trigger payments (Figure6).10 The MPP margin differs from the USDA-reported milk-to-feed ratio shown in Figure 5 butreflects the same market forces.Figure 6. The MPP Margin Projected to Remain Above 8/cwt. in 2017(National average farm price of milk less average feed costs per 100 lbs.)Source: USDA, NASS, Agricultural Prices, August 30, 2017; calculations by CRS. All values are nominal.Note: Based on the feed price formula used by the Margin Protection Program of the 2014 farm bill (P.L. 11379); see CRS Report R43465, Dairy Provisions in the 2014 Farm Bill (P.L. 113-79), by Randy Schnepf.Similarly, U.S. hog and cattle herds and poultry flocks are expected to continue to expand into2018.11 Cattle and hog expansion is primarily the result of a substantial lag in the biologicalresponse to the strong market price signals of late 2014. The U.S. cattle sector has beenexpanding since 2014. During the 2007 to 2014 period, high feed and forage prices, pluswidespread drought in the Southern Plains—the largest U.S. cattle production region—hadresulted in an 8% contraction of the U.S. cattle inventory (Figure 7). Reduced beef supplies ledto higher producer and consumer prices, which in turn triggered the slow rebuilding phase in thecattle cycle that started in 2014 (see the price-to-feed ratio for steers and heifers, Figure 5). Theresulting continued expansion of beef supplies pressured market prices lower into 2017.10See CRS In Focus IF10195, U.S. Dairy Programs After the 2014 Farm Bill (P.L. 113-79).USDA, World Agricultural Supply and Demand Estimates, Table—U.S. Quarterly Animal Product Prduction,September 10,2017, p. 31.11Congressional Research Service7

U.S. Farm Income Outlook for 2017However, projections of expanding domestic and international demand across all meat categoriesthrough 2018 is expected to largely stem the decline in prices and profitability in 2017 (Figure32).In 2014, the U.S. hog sector was hit by the rapid outbreak and spread of the porcine epidemicdiarrhea virus (PEDv), which caused market worries about reduced U.S. pork production. Theincidence of PEDv since the winter of 2014/15 has declined, and initial market fears havesubsided. However, the related 2014 surge in hog prices elicited substantial producer response,and the resulting continued expansion of pork supplies through 2016 has weighed on marketprices (Figure 34). For pork, as with beef and poultry, projections of expanding domestic andinternational demand have supported prices and profitability in 2017.Figure 7. The U.S. Beef Cattle Inventory (Including Calves) Since 1960Source: USDA, NASS, Cattle, January 31, 2017.Notes: Inventory data are for January 1 of each year.During spring 2015, the U.S. poultry industry experienced a severe outbreak of highly pathogenicavian influenza.12 The outbreak ended by early summer 2015. More than 48 million chickens,turkeys, and other poultry were euthanized to stem the spread of the disease. Turkey and egglaying hen farms in Minnesota and Iowa were the hardest hit. Commer

Off-farm income is included in the discussion of farm income at the household level at the end of this report. 1 For information on state-level farm income, see "U.S. and State Farm Income and Wealth Statistics," available as part of the Farm Income and Wealth Statistics, Farm Income and Costs, Farm Economy Topics, Economic Research