U.S. Farm Income Outlook for 2018

Summary

According to USDA’s Economic Research Service (ERS), national net farm income—a key indicator of U.S. farm well-being—is forecast at $59.5 billion in 2018, down nearly 7% from last year. The forecast decline in 2018 net farm income is the result of lower cash returns—from both production activities (-0.5%) and government payments (-18.6%)—and higher production expenses (projected up 1%). Net farm income is calculated on an accrual basis. Net cash income (calculated on a cash-flow basis) is also projected lower in 2018 (-5.1%) to $91.9 billion.

The 2018 net farm income forecast is substantially below the 10-year average of $85.7 billion. It would be the lowest since 2006 in nominal dollars and lowest since 2002 in inflation-adjusted 2015 dollars. This is primarily the result of the outlook for continued weak prices for most major crops. U.S. farm income experienced a golden period during 2011 through 2014 due to strong commodity prices and robust agricultural exports—in 2014 U.S. agricultural exports achieved a record of $152.3 billion. Most crops and livestock product prices remain significantly below the average for the period of 2011-2014, when prices for many major commodities attained record or near-record highs. Net farm income is projected down 52% since its record high of $123.7 billion in 2013. Net cash income is projected down 32% from its 2013 high of $135.6 billion. Farm-sector production expenses (although up year-to-year) have fallen slightly over that same period (-0.2%) but not nearly as quickly as commodity prices and revenue, thus contributing to lower aggregate income totals.

Government payments are projected down 18.6% at $9.3 billion from 2017—due largely to projected lower payments of $5.0 billion in 2018 under the Price Loss Coverage (PLC) and Agricultural Risk Coverage (ARC) revenue support programs for major field crops (down from $6.9 billion in 2017).

In 2018 agricultural exports are forecast to be flat, at $140 billion, due largely to abundant supplies in international markets and strong competition from major foreign competitors. Since 2008, U.S. agricultural exports have accounted for a 20% share of U.S. farm and manufactured agricultural sales.

In spite of the lower farm income outlook, farm wealth is projected to be up 1.8% from 2017 to $3,087 billion. Farm asset values reflect farm investors’ and lenders’ expectations about long-term profitability of farm sector investments. Farmland values are projected flat in 2018. Because they comprise such a significant portion of the U.S. farm sector’s asset base (81%), change in farmland values is a critical barometer of the farm sector’s financial performance.

At the farm household level, average farm household incomes have been well ahead of average U.S. household incomes since the late 1990s. In 2016 (the last year for which comparable data were available), the average farm household income (including off-farm income sources) of $117,918 was about 42% higher than the average U.S. household income of $83,143.

The outlook for lower net farm income and relatively weak prices for most major program crops signals the likelihood of continued relatively lean times ahead. Heading into 2018, the financial picture for the agricultural sector as a whole remains dependent on continued growth in domestic and foreign demand to sustain prices at current modest levels. Improvements in agricultural economic well-being will hinge on crop production prospects and prices as well as both domestic and international macroeconomic factors, including economic growth and consumer demand.

This report incorporates USDA’s initial February 7, 2018, farm income projections and its November 30, 2017, U.S. agricultural trade outlook update.