Animal spirits: What drives US farm cash receipts

Spoiling good news with an important caveat is not an enjoyable task – but it is one the statistical arm of the US Department of Agriculture had to perform as it unveiled farm income forecasts for 2017.

Starting with the positive – after a few years of decline, farmers’ net income is projected to be on the up, increasing 2.7 percent from 2016 to reach $63.2 billion. As often, this progress largely owes to an uptick in cash receipts (the cost side of the income equation tends to be less volatile). Given that 2016 was a disappointing year for a number of commodity groups, the more upbeat 2017 outlook is not all that surprising.

But zoom closer and the picture is not as clear. Cash receipts, a function of price and quantity sold, this year have tended to rely mostly on an increase in volume. The USDA reckons higher quantities explain about 90 percent of the overall increase in nominal cash receipts. That was even truer of crops, many of which experienced price declines big enough to tilt farm receipts into the red compared with 2016. Most animal and animal product prices, by contrast, were expected to rise.

The chart below conveys further nuance by providing a historical perspective on cash receipts: higher than 2016, but well down on highs previously achieved this decade.