Farm Income Does A Dead Cat Bounce
Bob Young -
Farm Bureau Chief Economist & Deputy Executive Director, Public Policy
A common phrase used
often when talking about markets that recover slightly after a precipitous
drop is “dead cat bounce.” A quick Google search suggests it was coined
following a slight recovery after a large market drop in the Singapore
and Malaysian markets. The idea is that if you throw even a dead cat on
the ground, it will bounce a little.
Farm incomes in 2012
and 2013 were high relative to historical standards, but have dropped substantially
since then. The recent projections of farm income released by USDA’s Economic
Research Service in their 2017 Farm Sector Income Forecast suggest that
we may have hit bottom in 2016 and are looking at an uptick in both net
farm and net cash income in 2017 to $100.4 billion and $63.4 billion, respectively
ERS last released
farm income projections at the end of February, so it is interesting to
compare and contrast this projection versus their earlier forecast. Both
crop and livestock sectors are projected to have higher cash receipts than
ERS projected in February. Crop cash receipts are now projected at $190
billion versus $187 billion earlier this year, an increase of 1.6 percent.
The changes in crop cash receipts are spread throughout a number of crops
and are all relatively minor.
The big change in
expectations for farm cash receipts comes on the livestock side. Livestock
cash receipts are now projected at $176 billion, compared to $168 billion
in February, an increase of 4.8 percent, Figure 2. Cattle cash receipts
are now projected $4 billion higher than in February, with hogs and poultry
up by $2 billion and just under $2 billion, respectively. Despite projections
for higher milk prices, dairy receipts are surprisingly slightly lower
than February figures.
Cash expenses are
also essentially unchanged from the earlier figures and still hold at $309
billion. While up $5 billion from 2016 costs, cash expenses are $30 billion
below that observed in 2014. But do not forget that one of the larger categories
of cash expenses are feed costs – money that comes out of one of agriculture’s
pockets only to go into another.
One other interesting
feature of the August numbers is on the debt side. Total farm debt is projected
at a record-high at $390 billion, with $242 billion representing real estate
debt and $148 billion representing non-real estate debt, Figure 3. An interesting
observation on the non-real estate debt is that ERS projected this figure
$7 billion lower this month than they did earlier this year - $148 billion
as opposed to the earlier $154 billion figure. No details are provided
to back up the change but it does suggest farmers and ranchers are continuing
to keep an eye on the debt side of the ledger. The net impact of lower
debt levels and higher farm income in 2017 is the debt to asset ratio in
2017 is projected at 12.68 percent, marginally higher than 2016, but well
below levels experienced in the 1980’s.