Balance sheet with farm scene background

Editor’s note: The following was published by the Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri Sept. 18.

This report utilizes commodity supply, demand and price projections from the FAPRI-MU baseline update released in August 2018. These projections of farm income and the farm balance sheet also differ from previous FAPRIMU projections because they incorporate recent large revisions in 2017 USDA farm income estimates.

The farm income projections incorporate the initial round of MFP payments, announced Aug. 27 that provide compensation for losses incurred because of trade disputes. We assume $4.0 billion in MFP payments will be made in calendar year 2018 and another $0.7 billion in 2019. No additional MFP payments are assumed, even though it is possible that a second round will be announced later this year.

Some highlights from the projections:

  • Cash receipts are up slightly in 2018, as higher receipts for feed grains and poultry products more than offset lower receipts for oilseeds, hogs and dairy products.
  • Higher costs for fuel, feed and labor contribute to a $10 billion increase in projected farm production expenses in 2018.
  • The MFP payments help push 2018 direct government payments to the highest levels since 2006. With no additional MFP payments assumed, total payments decline sharply in 2019.
  • Net farm income declines by $3 billion in 2018, as the effect of higher production costs more than offsets the increases in cash receipts and payments.
  • In 2019, net farm income declines by another $3 billion, in part because of lower livestock prices and government payments. Net farm income increases in nominal terms in subsequent years, but after correcting for inflation, real net farm income is about the same in 2023 as in 2017.
  • Farm real estate values are projected to decline slightly between 2018 and 2021 because of relatively flat returns and rising interest rates. This contributes to a similar modest decline in farm asset values.
  • Farm debt continues to increase, and the debt/asset ratio for the farm sector increases from 13.1 percent in 2017 to 14.6 percent in 2023.

Two important caveats: First, these estimates do not reflect any commodity market developments since August 2018, such as changes in the estimated size of the 2018 crop. Second, while MFP payments are included in these farm income estimates, they were not considered in the commodity market projections which were prepared before the payments were announced.