Following record breaking years, the Kentucky agricultural economy, like the overall U.S. agricultural economy, slumped in 2015, with concern looming for 2016. On the national front, USDA is projecting 2015 net farm income to plummet to $56 billion, down 28 percent from 2014 levels and 55 percent off the record high established in 2013.
In response to mounting supplies and depressed demand, prices for most crops and livestock are falling from their record high levels of recent years. U.S. agricultural exports declined from its peak in response to a strengthening U.S. dollar, sluggish economic growth overseas, and abundant supplies. Land values and crop rents appear to be slowly adjusting to the declining ag economy.
Anticipated increases in interest rates coupled with lower expected returns from agriculture will likely put downward pressure on land values. Despite the sharp downturn in the U.S. ag economy, lenders are reporting that the financial position of U.S. agriculture is still relatively strong following a period of extraordinarily high income levels. However, concerns are mounting for some high debt farming operations given the continued depressed outlook for most U.S. agricultural sectors in 2016.
Kentucky’s Agricultural Economy
Kentucky agricultural cash receipts set a record $6.5 billion in 2014, up from the previous record high of $6.2 billion in 2013. The University of Kentucky’s Department of Agricultural Economics is projecting that Kentucky ag sales will fall to $6.0 billion in 2015, off 8 percent from 2014, but still the third highest on record. Record high grain yields and strong spring/summer cattle prices, coupled with solid years for Kentucky poultry and equine sectors, helped partially offset depressed fall cattle and grain prices and disappointing tobacco acres and yields.
Crop receipts are expected to decline 16 percent, with livestock down 3 percent in 2015. For 2016, Kentucky ag cash receipts are expected to fall another 1 percent as anticipated gains in poultry, equine and hogs are projected to counter losses in cattle, grains and tobacco.
Poultry remained Kentucky’s number one ag enterprise, accounting for 22 percent of projected 2015 sales, followed by equine (16 percent), cattle (16 percent), soybeans (13 percent) and corn (13 percent).
According to the USDA National Agricultural Statistics Service, Kentucky net cash income peaked at $2.75 billion in 2013, before slipping to $2.5 billion in 2014. Declining cash receipts ($500 million), coupled with the ending of tobacco buyout payments (loss of approximately $150 million annually) will likely cause Kentucky net cash income to dip below $2 billion in 2015 and approach the 2010-2012 average of $1.4 billion in 2016.
Looking into 2016 for Kentucky agriculture, profitability in the grain sector will continue to be challenged and increasing livestock/meat inventories will put downward pressure on prices. The equine and poultry industries are expected to have solid years. Tobacco reductions may stabilize in response to an improving global world/supply demand balance. Cash flow/working capital will become concerns for some highly leveraged producers as profit margins deteriorate. Look for a continued growing demand for local production.
For a copy of the complete report or for more information, contact the Whitley County Cooperative Extension Service at 549-1430; e-mail DL_CES_WHITLEY@EMAIL.UKY.EDU; or visit the office located in Cumberland Regional Mall, 965 S. Highway 25W, Williamsburg.
Article Contributors: University of Kentucky Extension Department of Agricultural Economics Professors-Kenneth Burdine, Todd Davis, Tim Woods, Will Snell, Lee Meyer, Jeff Stringer; and University of Kentucky Extension Department of Forestry Professor-Jeff Stringer.