US farm profits to dip, but not as much as feared

The decline in US farm earnings will not be as severe as had been expected, thanks to "record high" prices forecast for meat and dairy products, and with prospects for growers not as poor as initially thought.

US farm net income this year will come in at $113.2bn this year, the US Department of Agriculture said.

While down 13.8% year on year, and the lowest since 2010, the figure was well above the forecast of $95.8bn made in February.

Indeed, it would "still remain more than $25bn above the previous 10-year annual average", said the USDA, which said that last year's earnings of $131.3bn were the largest, on an inflation-adjusted basis, in 40 years.

An improved forecast for US agricultural profits will offer some hope to agricultural machinery groups, such as Agco and Deere & Co, for which farm income is a key determinant of demand.

'Record-high annual prices'

The upgrade to 2014 expectations was down in the main to buoyancy in the livestock sector, which will enjoy cash receipts of $209.6bn, up 15.3% year on year, and well above the previous forecast of $183.4bn.

Selected US farm income estimates, change on previous and (yr on yr)

Crop receipts: $200.9bn, +$11.5bn, (-7.0%)

Livestock receipts: $209.6bn, +$26.2bn, (+15.3%)

Total receipts (includes others): $451.6bn, +$39.4bn, +1.3%

Expenses: $328.6bn, $+$18.3bn, (+4.2%)

Net farm income: $113.2bn, +$17.4bn, (-13.8%)

Source: USDA

Indeed, the sector's receipts will, unusually, exceed those from arable farming.

"Record-high annual prices are expected for livestock, dairy, and poultry products," the USDA said, factoring in "large gains in receipts from sales of cattle and calves, hogs, milk, broilers, and eggs".

The department factored in a 20% rise in cattle prices to a record high, spurred by strong exports at a time of falling US beef output.

"Forecasts for wholesale milk, broilers, and chicken egg receipts reflect expectations of higher production accompanied by record annual average prices."

Crop takings

However, the USDA also lifted expectations for crop receipts, ditching a forecast that "the value of crop production is expected to decline substantially in 2014, falling back to pre-2011 levels".

In fact, it raised by $11.5bn to $200.9bn its forecast for cash receipts from crops, down to improved ideas for prices, as well as production, of some crops.

In soybeans, for instance, the estimate for the drop in average prices received this year was reduced to 11.3%, from 19.3%.

For hay, the USDA switched to a forecast of higher prices as well as production this year, a reflection of the strong livestock market.

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