US farmland incomes set to fall to lowest level in nine years

Farmland incomes in the US are set to fall to their lowest level in nine years, the US Department of Agriculture said this week, reflecting bumper harvests and higher dairy and hog production.

Net farm income in 2015 is forecast by the USDA to be $58.3 billion, 36 percent lower than the estimate of more than $91 billion made last year. In February the USDA projected 2015’s farm income would be $73.6 billion.

Tom Vilsack, the Secretary of Agriculture put a positive spin on the numbers, saying that “the past several years have seen unprecedented highs in farm income, and despite the fact that farm income is forecast to be down from record levels, today’s projections provide a snapshot of a rural America that continues to remain stable and resilient.”

Unexpectedly strong harvests leading to increased inventories have pushed down commodity prices. Last month the USDA said corn, soybean and wheat inventories all increased on 2014’s numbers, with corn stockpiles up 15 percent, soybean up 54 percent and 753 billion bushels of wheat in storage, compared with a forecast of 713 million bushels.

This over-supply will push crop receipts down $12.9 billion in 2015, a more than 6 percent fall. Corn sales are expected to fall $7.1 billion, soybean sales by $3.4 billion and wheat receipts will be $1.6 billion down compared with 2014.

Farmland investors will be watching commodity price movements closely, given their correlation to farmland values. US farmland has outperformed real estate over 15 years, the real estate company Savills found in a report earlier this year, but said that unlike in other parts of the world, US farmland values are much more related to commodity prices.

Higher production but weaker pricing of dairy and hog prices are also weighing on incomes, with 66.9 million hogs and pigs on US farms at the start of June this year, a 9 percent increase on the same time last year. In the second quarter of this year, US hog and pig producers weaned 10.37 pigs per litter, a record high average. On the dairy side, a glut of product combined with the inability to process or send to market led dairies in the Northeast and Michigan dumping more than 30 million pounds of milk into waste systems earlier this year, according to the USDA. Global dairy prices have recently fallen to a thirteen year low because of global over-production.

Overall livestock receipts in the US are expected to decrease by $19.4 billion due to lower milk and hog prices, the USDA said. Farm real estate asset values are also forecast to fall 3.5 percent. Earlier this month USDA figures showed farmland values defying predictions and increasing 2.4 percent from mid-2014 to 2015. However this positive picture was questioned by some experts, who said the figures could be out by as much as 15 percent.