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Friday, January 21, 2011

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 $81.6 billion in 2010, up 31% from the previous year’s total of $62.2 billion and second only to the 2004 record of $87.4 billion. Higher revenues from strong livestock markets, coupled with modest gains in crop revenues, are expected to offset a slight increase in input costs to account for the forecast higher net returns.

The major drivers behind strong farm income projections are the outlook for strong U.S. agricultural exports in 2010 (forecast up 13% to $108.7 billion) followed by record exports in 2011 (projected up another 16% to $126.5 billion), and continued growth (mandated by federal usage requirements) in the U.S. corn ethanol industry. A recovering global economy (bolstered by particularly strong economic growth in China) is expected to support strong demand for cotton, feed grain, oilseeds, and livestock products. Severe drought in Russia, Kazakhstan, and the Ukraine during their 2010 growing seasons lowered export supplies from those traditional feed grain export markets and helped shift market interest to U.S. feed grains. Meanwhile, continued growth in U.S. corn-based ethanol production and strong livestock prices are expected to push corn and other crop prices steadily higher as they compete for a fixed amount of cropland. As a result, market prices for major program crops have firmed up and improved the earnings outlook for most agricultural commodities, but especially for livestock and cotton producers.

Government farm payments are projected up slightly in 2010 at $12.4 billion but remain a small share (3.6%) of projected gross cash income of $346.4 billion. Most of the increase is from a jump in ad hoc and emergency disaster assistance, projected at $2.8 billion, compared with $0.6 billion in 2009. In particular, eligible recipients under the Supplemental Revenue Assistance Payments (SURE) Program are expected to receive $1.93 billion in payments in calendar year 2010, while Crop Assistance Program payments are expected to total $420 million. Strong cotton, grain, and oilseed prices are expected to sharply reduce payments under the marketing loan and counter-cyclical payment programs (down a combined $2 billion).

Farm production expenses are forecast up a modest 2% to $286.6 billion in 2010, led by higher livestock replacement and fuel costs, and increasing outlays for crop insurance. Fertilizer, seed, and pesticides costs declined modestly in 2010 after rising steadily from 2002 through 2008.

Farm asset values—which reflect farm investors’ and lenders’ expectations about long-term profitability of farm sector investments—are expected to rise 3.1% in 2010 to $2,120 billion following a 1.7% rise in 2009. Farm land cash markets in late 2010 suggest that land values will continue to see gains related to strong crop prices in 2011.

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 to fall in 2010 to about 11.3%.

These data suggest a strong financial position heading into 2011 for the agriculture sector as a whole relative to the rest of the U.S. economy. An improving global economic outlook for 2011 is expected to 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 to near record highs in the second half of 2010, and is expected to sustain those high levels well into the 2011 planting season.

Date of Report: December 27, 2010
Number of Pages: 27
Order Number: R40152
Price: $29.95

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