Since peaking in 2013, U.S. farm income has contracted 50 percent, as 2017 would be the fourth consecutive year of declining incomes. While the continued decline is headline-worthy, there are additional insights also worth noting.
Figure 1 is a long-run perspective on the USDA’s latest estimates. In real, or inflation-adjusted terms, net farm income is shown from 1929 to 2017.
In orange is the long-run average farm income, nearly $72 billion. Many years – such as the late 1980s until the early 2000s – are spent right below this long-run average. Currently, U.S. agriculture is in downward adjustment with farm income estimates well below the long-run average.
The good
An overlooked detail from the latest report is that current forecasts are markedly improved compared to the estimates just a year ago (February 2016). Last year, the estimates for both 2015 and 2016 were lower than the February 2017 estimate for 2017.
The current estimate of 2015 – which is currently near the long-run average – has substantially improved over the past year.
While the current estimates look bleak, solace can be taken in the improvements of conditions from last year’s estimates.
The bad
In addition to declining farm incomes in 2017, the USDA also provides estimates for total farm assets and debt. The trends for all three of these measures are worrisome. In 2017, total farm assets are expected to decline 1 percent, while total farm debts will climb 5 percent. Since 2013, total farm debts have increased by 25 percent while total farm income fell 50 percent.
The trend of falling income, slumping asset and rising debt will result in the key financial ratios – such as the debt-to-asset ratio and debt service ratio – further eroding in 2017.
These three financial measures – especially farm debt – will be important to monitor in the coming years.
Cattle
To evaluate the conditions facing beef producers, the USDA provides a measure of total cash receipts by commodity. These cash receipt estimates are the cash sales that occurred during the year. For 2017, cash receipts for cattle and calves are forecasted 7 percent lower.
For context, cash receipts for cattle and calves contracted 14 percent in 2016 and, overall, has contracted 23 percent since peaking in 2014.
Elsewhere in livestock, cash receipts have contracted 29 percent in pork and 21 percent in dairy since 2014. Exacerbating the tough situation cattle producers are facing, cash receipts for row crops have also contracted.
Producers with a diversified operation have felt an additional squeeze as cash receipts of corn (-23 percent) and wheat (-48 percent) have contracted since 2013.
Looking ahead
Just as conditions improved throughout 2016, conditions can very well change throughout 2017. The most apparent reasons for farm incomes to adjust are changes in commodity prices. The current farm income estimate is sort of a budgeted scenario and, as many producers know well, budgets and reality can greatly differ from price and production (yield) differences.
Throughout 2016, much of the improvement in farm income came from a sharp contraction in estimated farm capital consumption and capital expenditures. Capital consumption – an economic depreciation measure – fell sharply in 2015, and overall capital expenditures contracted 26 percent – the largest contraction since the 1980s.
In short, these farm income estimates are very helpful and useful but are subject to changes and revisions. Conditions in 2017 might change significantly as these estimates can, and do, significantly change – favorably and unfavorably.
Wrapping it up
Initial estimates for net farm income in 2017 is a fourth year of contraction. The change over 2016 (9 percent lower) is not nearly as concerning as the four-year contraction of 50 percent. Even though conditions are challenging, it is worth noting the USDA’s initial estimate for 2016 a year ago (in February 2016) was more bleak than current estimates.
This speaks to the reality that the estimates for 2017 (and even 2016) could be subject to large changes over the next 12 to 18 months.
In addition to declining net farm income, the USDA also projects rising farm debt and steady – to slightly lower – farm assets. Taken in combination, this marks a continued slide in the health of the farm financial sector and sets 2017 up as another challenging year for producers. 
David Widmar is an agricultural economist specializing in agricultural trends and producer decision-making. He is the co-founder of Agricultural Economic Insights LLC and a researcher in the Center for Commercial Agriculture at Purdue University. Follow David on twitter.
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