USDA continues to forecast higher farm incomes in 2017, but the agency cut its latest projection slightly on Wednesday. While income of $63.2 billion would be 2.7% higher than 2016, today’s reductions could foreshadow another challenging year ahead.

USDA won’t release its first estimate of 2018 net farm income until February. But Farm Futures projections show potential for earnings to fall to $61.1 billion, giving back all of this year’s increase. 

The latest update also masks ongoing problems for crop growers. Low crop prices continue to squeeze growers, a trend that appears unlikely to stop for now. USDA put cash crop receipts for 2017 at $189.9 billion, a 2% drop from the previous year. Farm Futures projections show crop receipts down another 3% in the year ahead.

A significant increase in livestock revenues is the saving grace for farm incomes, at least for the operations still involved directly in animal agriculture. USDA estimates 2017 cash livestock receipts at $175.2 billion, up $13 billion from the previous year. Those revenues could top $193 billion in 2018, according to our forecast, paced by increases in poultry, pork and beef production.

While USDA said production expenses dropped sharply from 2014 through 2016, the agency sees costs increasing in 2017, further eating into profits.  Costs are likely to keep rising overall in 2018, thanks in part to higher expenditures on fuel and labor.

Estimating net farm income can be tricky, because it takes into account adjustments for inventories produced in one year and sold in the next. Calculations for machinery and equipment depreciation can also cause unexpected swings from year to year.

But with corn and wheat futures making new contract lows this week, hopes for a significant rebound in earnings appear unlikely unless production problems emerge around the world. 

Still, the current downturn is mostly about profit. Margins could be up slightly in 2017 to 21%, before falling back to 20% again next year, the level reached in 2016, which was lower than any seen during the years of the 1980s farm crisis. The downturn a generation ago was fueled by debt, but USDA said the overage farm debt-to-assets ratio for 2017 would be little changed at 12.7%, less than half the level during the 1980s. 

Still, debt is on the rise, mostly for farmland, according to USDA. Coupled with higher interest rates that’s increasing the cost of servicing debt to its highest levels in more than 25 years.