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Wednesday, September 22, 2010

U.S. Farm Income

Randy Schnepf
Specialist in Agricultural Policy

According to USDA’s Economic Research Service (ERS), national net farm income—a key indicator of U.S. farm well-being—is forecast at $77.1 billion in 2010, up 24% from the previous year’s total of $62.2 billion, but well off of the 2004 record of $87.4 billion. Higher revenues from strengthening livestock markets (while crop revenues hold steady) are expected to offset a slight increase in input costs to account for the forecast higher net returns.

A major catalyst behind projections for stronger farm income is the outlook for sharply higher U.S. agricultural exports in 2010 (forecast up 11% to $107.5 billion) and 2011 (projected up 5% to $113 billion). A recovering global economy is expected to support strong demand for cotton, feed grain, and livestock products. In addition, severe drought in Russia, Kazakhstan, and the Ukraine has lowered export supplies from those traditional feed grain export markets, while continued strong income growth in China is driving robust Chinese import demand for cotton, grains, and oilseeds. As a result, strong international demand is firming up market prices and improving the earnings outlook for most agricultural commodities, but especially for livestock and cotton producers.

Government farm payments are projected down about 2.7% in 2010 at $11.9 billion, as higher cotton prices are expected to sharply reduce payments under the marketing loan and countercyclical payment programs (down a combined $1.8 billion). In contrast, ad hoc and emergency disaster assistance is projected at $2.3 billion in 2010, up sharply from 2009. In particular, eligible recipients under the Supplemental Revenue Assistance Payments (SURE) Program are expected to begin receiving payments in calendar year 2010. About half of the rise in government farm payments is attributable to payments made under the SURE Program and the Dairy Economic Loss Assistance Payments Program.

Farm production expenses are forecast up only slightly (1.1%) at $284 billion in 2010, as lower feed and fertilizer costs partially offset expected rises in fuel costs and property taxes.

Farm asset values—which reflect farm investors’ and lenders’ expectations about long-term profitability of farm sector investments—are expected to rebound (up 1.4%) in 2009 to $2,043 billion after having fallen nearly 2% in 2008 with the decline in the general economy. Farm asset values are projected to rise another 2.5% in 2010 to $2,096 billion. Higher farm asset values are due primarily to stronger farm real estate values, which had fallen by 3.2% during 2009, the first decline since 1987. Farm land cash markets in early 2010 suggest that land values have stabilized but could see renewed gains related to strong crop prices in 2010. This same pattern is reflected in both cropland and pastureland values.

The farm debt-to-asset ratio had been steadily declining since 1998’s value of 16% to a recent low of 10.4% in 2007, before rising to 12% in 2008 and 2009. The ratio is expected fall in 2010 to about 11.2%.

These data suggest a mildly stronger financial position in 2010 for the agriculture sector as a whole. An improving global economic outlook for 2010 is expected to slowly reinvigorate international consumer demand while the U.S. economy remains sluggish. Signs of this can already be seen as strong demand-led growth, primarily from export markets, has pushed most commodity prices higher in the first half of 2010.

Date of Report: September 3, 2010
Number of Pages: 26
Order Number: R40152
Price: $29.95

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