Analysis: FAPRI Farm Income Outlook Less Positive Than USDA

ScottBrown FAPRI Baseline
FAPRI's baseline projection paints a bleak picture for agriculture, with the farm financial picture showing more of the same with continued pressure. ( MGN )

The story of net farm income may be more of the same for 2019. The University of Missouri’s Food and Agricultural Policy Research Institute (FAPRI) released its 2019 Baseline Outlook  to Congress Monday. The report is a measuring stick in order to set policy by looking at projections for the agriculture industry over the next decade.

The report digs into farm income projections, for both crop and livestock sectors.

FAPRI’s baseline projections point to little change in net farm income over the next decade, which could lead to further erosion in the farm financial picture for agriculture.  For 2019, FAPRI sees livestock receipts not boasting the numbers USDA currently projects.

“We know that creates additional financial stress in the industry,” said Scott Brown, University of Missouri economist. “As you look across all of the commodities, we have growing supplies in almost all cases, so prices for many of those commodities will be probably sideways at best without some type of major event occurring is what this baseline really shows.”

USDA’s Net cash farm income forecast released in March showed an increase of $4.3 billion, or 4.7 percent, to $95.7 billion. FAPRI projects a smaller increase in 2019 net farm income, but when economists put it into perspective, the figure is still below the 2014-2017 average.

“When you look at net cash farm income, we’re showing flat net cash farm income impact in 2019 relative to 2018,” Brown said. ”Some value of inventory change information does show net farm income a little higher in 2019, similarly to USDA, but I think when you look at the USDA forward looking 2019 forecast, they had a fairly large increase in U.S. livestock cash receipts, that at this point the FAPRI baseline does not show. “

Brown said the main discrepancy between FAPRI’s projections and what USDA released in March is on the livestock side.

“That is one of the biggest differences we see between those numbers,” said Brown. “When you look at where we’ve been in terms of market prices for hogs and cattle his year, I would say it’s hard to talk about higher cash receipts for the livestock industry.”

Brown said the main factor that could temper any price strength is the supply side of the livestock equation, especially if tariffs on meat exports continue. Brown said his biggest concern right now is with the new U.S. Mexico Canada Agreement (USMCA) and if those tariffs will be removed.

“We’re going to talk about 4 percent more pork supplies being produced in the United States this year, we’re likely going to talk about beef production up 1 percent,” he said. “So, we need to move more domestic supplies of beef and pork to international markets.”

He said high tariffs on items like hams don’t help. If those tariffs continue, and tariffs aren’t removed soon, it could be a detriment to exports and prices.

“We’ve started the year in terms of exports of beef and pork slower, compared to the very stellar performance we saw for beef in 2018, and so I think removing those tariffs on our products are really important,” said Brown. “Also, I know soybean producers would relish the chance to move soybeans to China without a tariff.”

On the row crop side, FAPRI does project corn prices to continue to rebound in 2019. The picture isn’t as promising for wheat or soybeans. FAPRI projects current trade disputes to further hinder prices and disrupt trade for the soybeans. FAPRI also thinks further recovery in wheat prices will be limited due to hefty global supplies.

With a bleak outlook for prices, FAPRI says pressure on farm financials appears likely to continue, including increases in the farm sector’s debt-to-asset ratio. If the debt-to-asset ratio in agriculture continues to climb, it’s a warning sign for many economists about the health of the farm economy.

“Unfortunately, this is a discussion about how do you tighten the belt; how do you work on the cost side,” said Brown. “I’m not sitting here saying everyone should minimize costs, but as you think about the inputs you want to use- whether it’s a livestock producer or a crop producer- you have to think very hard about what the return is to those inputs.”

Brown said there are farmers today already facing severe financial pain. However, other producers are handing the economic downturn better than others.

“Those who are able to do this the most efficiently are the ones that are likely going to be the ones who survive a tough financial situation with prices. As I look forward, I think we’re going to see more financial pain as we go through 2019.”

Brown thinks the producers who grew too big, too fast, are feeling the financial pain the most today. Considering FAPRI isn’t projecting a major turnaround in prices or farm income over the next decade, there are some producers who may not be able to recover financially.

“The longer we go, the deeper the hole they dig for themselves, and the harder it is to get out of that hole, and so it’s a mixed bag, but we certainly know we have a segment that’s hurting financially.”



To see FAPRI’s full 2019 baseline outlook, visit FAPRI’s website