Christopher Doering

cdoering@gannett.com

WASHINGTON — Farmers in Iowa and across the Corn Belt are bracing for a rough 2016 with farm income forecast to drop for the third straight year amid a prolonged downturn in corn and soybean prices, the Agriculture Department said Tuesday.

The USDA said income ​is expected to fall 3 percent to $54.8 billion in 2016. That would drop net farm income to its lowest level since 2002, tumbling 56 percent from its recent high of $123.3 billion just three years ago, when tight supplies and strong global demand for commodities led to record profits.

The federal government said cash income from the sale of all commodities this year will fall $9.6 billion to $367.5 billion, mostly because of a $7.9 billion decrease in animal and animal product receipts.

Still, Agriculture Secretary Tom Vilsack said the drop “is an improvement from the double digit declines seen in 2014 and 2015. It reflects a more competitive trade environment, softening projection for global demand and a continuation of the dip in agricultural commodity prices.”

Indeed, average household farm income this year is projected to be $17,769, up slightly from $17,279 last year. But that's still down sharply from $28,687 just two years ago, according to USDA.

Moreover, the debt-to-equity ratio for U.S. farms also rose for the fourth consecutive year, the government said, which indicated "a higher amount of financial stress is building in the sector relative to recent years."

Michael Hein, vice president of Liberty Trust and Savings Bank in Durant, Iowa, said most farmers came into 2016 with sufficient cash resources, but signs indicate that financial conditions are worsening amid the prolonged slump in commodity prices and stubbornly high input costs.

“This is going to be a telling year,” said Hein.

Across the board, the numbers appear to be going the wrong direction for farmers:

Income generated from egg sales is expected to tumble by $2 billion, to $10.6 billion, as the industry ramps up production following last year's bird flu outbreak that hit Iowa and 14 other states and sent egg prices soaring. Iowa, the nation's No. 1 egg producer, lost 34 million birds to the disease, with the virus affecting about 40 percent of egg-laying hens in the state.

A rebound in hog production, which is surging as the industry recovers from the porcine epidemic virus in 2014, will boost supply and push down prices. Hog cash receipts are expected to drop 5.1 percent to $18.5 billion.

Crop receipts are expected to slip $1.6 billion, to $189.7 billion, from 2015. Corn receipts are forecast to fall by $800 million, to $46.4 billion.

Soybeans are one of the few exceptions, expected to record a modest increase of $520 million to $35.1 billion, with higher output overshadowing a small price decline. Iowa is the country's No. 2 soybean producer.

Hein said a growing number of Corn Belt farmers are losing money. As a result, more and more farmers are having to restructure loans or refinance them against other equity resources so they have enough cash to operate.

Many producers won’t have the cash that once came from higher corn and soybean prices to pay for seed, fertilizer, land rents and other inputs that have not fallen at the same rate compared to commodities, Hein said. Liberty Trust and Savings is expecting an increase in loan demand for farmers in 2016.

“Everything is just disproportionately expensive in relation to the value of the commodities that they raise,” Hein. said “There will be some reconciliation if commodity prices stay where they are at or lower.”

Some relief could come from lower expenses, which are expected to see a drop for the second consecutive year, the USDA predicts. It would be the first time expenses have declined in back-to-back crop years in three decades.

Production costs are expected to drop $3.8 billion to $376.5 billion, following a $10.1 billion decline in 2015.

"The drop in expenses (such as feed, fuel, seed, pesticide and fertilizer) is expected to alleviate, but not completely offset, the drop in cash receipts, and ultimately lead to tighter margins," USDA said.

Iowa farmers were expecting a down year, according to an informal survey of those who attended the American Farm Bureau Federation's annual convention in January. To help conserve cash, nearly all the respondents indicated they were making changes to their operations.

Justin Dammann, a corn and soybean producer from Essex, Iowa, said while his operation isn’t facing “a life-or-death situation,” the 36-year-old producer is keeping a close watch on his spending by using less fertilizer and delaying equipment purchases. He’s also switching more of his soybean acreage to corn, which is more profitable than the oilseed.

“If we can break even, pay our bills and make our payments, I’d say we’re going to be lucky,” said Dammann, who has been farming full time since 1999. “We’ve never seen a downturn like this.”

Contact Christopher Doering at cdoering@usatoday.com or reach him at Twitter: @cdoering