Kentucky net farm income is expected to dip to less than $1.5 billion in 2016, down from $1.7 billion in 2015 and potentially its lowest level since 2010. A significant decline in cash receipts the past couple of years, plus the end of tobacco buyout payments in 2014, have been the major reasons behind the rapid fall in Kentucky’s net farm income since peaking at nearly $3 billion in 2013.

The state’s agricultural cash receipts in 2016 are projected to fall to $5.4 billion, off 7 percent from $5.8 billion in 2015 and off 17 percent from the record high of $6.5 billion in 2014. On the national front, prices and incomes fell for the third straight year.

"2016 has been another challenging year for Kentucky agriculture with considerable price and weather volatility. Price and profit challenges will remain a major concern heading into 2017 in the midst of ample commodity supplies, a strengthening U.S. dollar and sluggish global economic growth,” said Will Snell, extension professor in the University of Kentucky Department of Agricultural Economics. “However, assuming there are no major supply or demand shocks, net farm income for Kentucky farmers may show signs of stabilizing in 2017 as the global markets work off excess supplies and global economies begin to show some modest growth.”

Snell and other UK College of Agriculture, Food and Environment faculty, including agricultural economists Kenny Burdine, Todd Davis and Tim Woods, Bobby Ammerman from the Department of Forestry, and Kentucky Farm Business Management Program coordinator Jerry Pierce, shared their agricultural economic outlook for 2017 and an overview of 2016 on Dec. 1 during the Kentucky Farm Bureau 97th annual meeting in Louisville.

Poultry receipts should be back on track in 2016 after rebounding from the effects of avian influenza in 2015, with growth continuing in 2017. Poultry remains Kentucky’s No. 1agricultural enterprise with 23 percent of projected sales, followed by equine, which had another steady year and accounted for 17 percent of sales receipts. Soybeans, at 15 percent; corn, at 13 percent, and cattle, at 12 percent, were next on the list.

Much of the decline in Kentucky agricultural sales for 2016 can be attributed to rapidly falling cattle receipts, which fell by more than 30 percent in response to mounting beef, poultry and pork supplies.

“Efficient operations are likely covering cash costs and breeding stock depreciation, but there is little to no return on capital, land and management costs,” Burdine said.

He predicts producers will see some improvement in price during spring 2017, but expects a significant drop from spring to fall, given an expected increase in beef cow numbers, as well as continued growth in the production of competing meats.

Horse receipts remain flat. September yearling sales were down about 3 percent. Early November breeding stock sales were solid before slumping at the end when mid- to lower-quality horses were placed on the market.

A record U.S. soybean yield and production is projected to increase total supply to a record of more than 4.58 billion bushels. Exports finished 265 million bushels above October 2015 estimates because of South American production problems, which also increased corn exports. U.S. corn supply will set a record in 2016 of more than 17 billion bushels, with exports finishing above April 2016 estimates. In wheat, a record U.S. yield offset a 3.4-million-acre reduction in harvested area, with the supply projected to increase 448 million bushels from 2015. Wheat exports are projected to top the preceding year, but are still 200 million bushels below 2013, Davis said.

Tobacco receipts slumped to their lowest post-buyout level due primarily to unfavorable weather and curing conditions. A combination of much lower yields and a very poor quality crop will likely cause the Kentucky value of tobacco production to fall below $300 million in 2016.

The excessive rain in summer 2016 resulted in modest decreases in produce sales to about $38 million, down from $40 million in 2015, Woods said. Stronger greenhouse sales should offset slower nursery sales and reach about $96 million, the same as last year.

“The big winner in the current depressed ag economy are consumers, with lower meat prices primarily leading the way and fruits and veggies relatively stable in 2016,” Snell said. “Food price inflation is expected to remain relatively tame for 2017 as well.”

Overall, the forestry sector declined 4.8 percent over 2015. Lackluster markets for most of the hardwood lumber species, decreased demand for products such as railway ties, and the Verso pulp and paper mill closing in Wickliffe dragged down the sector. Bucking the trend, however, was the increased demand for white oak stave logs used for bourbon whiskey barrels. The seller’s market in that area should continue into 2017.

“Without any major supply or demand shocks, ag commodity prices in 2017 may not be as volatile and production expenses may remain relatively stable, but government farm payments could be lower in response to the structure of the current farm bill,” Snell said.

A copy of the outlook publication including information on individual farm sectors can be found at http://www.uky.edu/ag/agecon/pubs/extoutlook161758.pdf.

Author: Will Snell

Contact: Will Snell 859-257-7288