A Very Good Year: USDA forecasts record farm income, with strong key ratios

Guest author Bryce Knorr, published Farm Futures story

While farmers worry about falling crop prices and rising land costs, the government’s forecasting a rosy outlook for 2013.

USDA’s latest estimates project record net farm income for 2013 of $128.2 billion. Even when adjusted for inflation, which is up more than 400% in the last four decades, this year’s income could be second only to the results from 1973.
 
USDA’s projections show 2012 income faltered a bit due to the historic drought, falling $5.1 billion, or 4%, from 2011, the previous record for income in “nominal” dollars that were not adjusted for inflation. But in 2011, both livestock and crop farmers prospected. The government’s latest forecast shows gains would be uneven in 2013.

Sales from crop production would rise 11%, as growers benefit from prices that are still 
historically high. Livestock producers, by contrast, would foot the bill for higher feed costs. Their sales are forecast to rise just 3%.

The government’s forecast doesn’t project differences in key financial ratios between crop and livestock producers. But it’s likely the balance sheets of growers would fare better than those involved in animal production. USDA forecasts an 8% increase in farm assets over the year, likely due to rising farmland values. Real estate would increase 8%, while the value of livestock declines 1%. Farm machinery would take a big jump, rising 9%. Non-real estate debt would rise faster than real estate debt, which would drop. Overall farm equity is expected to grow 8%.

Financial ratios would continue to reflect that strengthening balance sheet, assuming land values hold up. The overall farm debt-to-asset ratio would fall to just 10.2%, the lowest since USDA began tracking the measure of solvency in 1960. Interest as a percentage of both income and expenses would also fall to record lows. Even return on equity, which began to falter under the weight of rising land values from 2006 to 2010, would edge higher to 5.2%.

While the forecast doesn’t account for any change in farm program spending, in the current environment that might not matter, for now. Direct government payments as a percentage of net farm income are expected to fall to 8%, their lowest level since the 1970s.

Photo obtained from: http://www.ers.usda.gov/amber-waves/2013-march/farm-income-forecast-to-remain-high-in-2013.aspx#.UWWFFhmvzHw