USDA's 2018 Farm Income Forecast

According to ERS, U.S. net farm income is forecast at $66.3 billion in 2018, down 12% from last year ( Table A-1 ). This forecast includes the first round of payments under the trade aid package announced by USDA in July 2018. The forecast decline in 2018 net farm income represents continued agriculture-sector economic weakness since 2013's record high of $123.8 billion. Selected Highlights

The net farm income forecast for 2018 is substantially below the 10-year average of $86.9 billion ( Figure 1 ). Net cash income is also projected lower in 2018 at $93.4 billion (-8%). Since the record highs of 2012 and 2013, net cash income and net farm income have fallen by 31% and 46%, respectively ( Figure 1 ), thus continuing a general downward trend in farm income since 2013—primarily the result of a significant decline in most farm commodity prices since the 2013-2014. Ad hoc disaster assistance and crop insurance indemnity payments were also larger in 2018. Cash receipts from crop and livestock production are up slightly (+0.7%) at $374.9 billion ( Table A-1 ). Crop Receipts

Total crop sales peaked in 2012 at $231.6 billion when a nationwide drought pushed commodity prices to record or near-record levels. Government Payments

Government payments in 2018 are projected up 17.9% from 2017 at $13.6 billion—the highest total since 2006 and due largely to payments under the market facilitation program (MFP) by USDA of approximately $4.6 billion in response to the U.S.-China trade dispute. In contrast, government payments are expected to represent 21% of the projected net farm income of $66.3 billion. Production Expenses

Total production expenses for 2018 for the U.S. agricultural sector are projected to be up (+4.2%) from 2017 in nominal dollars at $369.1 billion ( Figure 16 ). Agricultural Trade Outlook

U.S. agricultural exports have been a major contributor to farm income, especially since 2005. However, USDA forecasts China's imports of U.S. agricultural products to decline to $20.5 billion in FY2018 and to $13.6 billion in FY2019 as a result of the U.S.-China trade dispute. ROW is expected to account for 41% of U.S. agricultural exports in FY2019. U.S. Farm and Manufactured Agricultural Product Export Shares

The share of agricultural production (based on value) sold outside the country indicates the level of U.S. agriculture's dependence on foreign markets, as well as the overall market for U.S. agricultural products. Farm Asset Values and Debt

The U.S. farm income and asset-value situation and outlook suggest a relatively stable financial position heading into 2018 for the agriculture sector as a whole—but with considerable uncertainty regarding the downward outlook for prices and market conditions for the sector and an increasing dependency on international markets to absorb domestic surpluses:
Farm asset values—which reflect farm investors' and lenders' expectations about long-term profitability of farm sector investments—are projected to be up 1.4% in 2018 to a nominal $3 trillion ( Table A-3 ). On-Farm vs. Off-Farm Income Shares

Average farm household income (sum of on- and off-farm income) is projected at $111,321 in 2018 ( Table A-2 ), down 1.9% from 2017 and well below the record of $134,164 in 2014. U.S. Total vs. Farm Household Average Income

Since the late 1990s, farm household incomes have surged ahead of average U.S. household incomes ( Figure 28 and Figure 29 ). In 2017 (the last year for which comparable data were available), the average farm household income of $113,495 was about 27% higher than the average U.S. household income of $89,632 ( Table A-2 ).
According to USDA's Economic Research Service (ERS), national net farm income—a key indicator of U.S. farm well-being—is forecast at $66.3 billion in 2018, down over $9 billion (-12%) from last year. The forecast decline in 2018 net farm income is the result of a small increase in gross returns (up $5.8 billion or +1.3%)—including the initial tranche of payments under the trade aid package announced by USDA in July 2018—offset by higher production expenses (up $14.9 billion or +4.2%). Net farm income is calculated on an accrual basis. Net cash income (calculated on a cash-flow basis) is also projected lower in 2018 (-8%) to $93.4 billion.
The 2018 net farm income forecast is substantially below the 10-year average of $86.9 billion (in nominal dollars)—primarily the result of the outlook for continued weak prices for most major crops. Commodity prices are under pressure from a record soybean and near-record corn harvest and from diminished export prospects due to an ongoing trade dispute with China. U.S. farm income experienced a golden period during 2011 through 2014 due to strong commodity prices and robust agricultural exports. Most crops and livestock product prices remain significantly below the average for 2011-2014, when prices for many major commodities attained record or near-record highs. Net farm income is projected down 46% since its record high of $123.7 billion in 2013. Net cash income is projected down 31% from its 2013 high of $135.6 billion. Farm-sector production expenses have risen 2.5% over that same period, thus contributing to lower aggregate income totals.
Government payments are projected up nearly 18% from 2017 at $13.6 billion—the highest total since 2006 and due largely to market facilitation payments by the U.S. Department of Agriculture (USDA) of approximately $4.6 billion in response to the U.S.-China trade dispute. Ad hoc disaster assistance and crop insurance indemnity payments were also larger in 2018.
Since 2008, U.S. agricultural exports have accounted for a 20% share of U.S. farm and manufactured or processed agricultural sales. In 2018 total agricultural exports are forecast up 2% at $143.4 billion. However, abundant supplies in international markets, strong competition from major foreign competitors, and the ongoing U.S.-China trade dispute are expected to shift trade patterns and diminish U.S. export prospects in 2019.
In spite of the lower farm income outlook, farm wealth is projected up 1.4% from 2017 to $3.0 trillion. Farm asset values reflect farm investors' and lenders' expectations about long-term profitability of farm sector investments. Farmland values are projected up 1.9% in 2018 following a 2.3% rise in 2017. 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 above average U.S. household incomes since the late 1990s. However, that advantage has narrowed in recent years. In 2014, the average farm household income (including off-farm income sources) was about 77% higher than the average U.S. household income. In 2017 (the last year with comparable data), that advantage is expected to decline to 27%.
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. The U.S. agricultural sector's well-being remains dependent on continued growth in domestic and foreign demand to sustain prices at current modest levels. In addition to commodity prices, the financial picture for the agricultural sector as a whole heading into 2019 will hinge on both domestic and international macroeconomic factors, including interest rates, economic growth, and consumer demand. This report incorporates USDA's November 30, 2018, farm income projections and its November 29, 2018, U.S. agricultural trade outlook update.