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Monday, September 19, 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 a record $103.6 billion in 2011, up 31% from the previous year’s total of $79 billion and easily surpassing the previous record of $87.4 billion achieved in 2004. Record revenues from strong crop markets, coupled with sharp gains in livestock revenues (also record high), are expected to offset a $32.5 billion increase in input costs to account for the forecast higher net returns.

The major drivers behind strong farm income projections are the outlook for record U.S. agricultural exports in 2011 (projected up 26% to $137 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 grains, 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 are approaching the record or near-record levels achieved in 2008, and have improved the earnings outlook in 2011 for most commodities, but especially for corn, wheat, cotton, and soybeans.

Government farm payments are projected down nearly 18% in 2011 at $10.2 billion as high commodity prices shut off payments under the price-contingent marketing loan and countercyclical payment programs.

Farm production expenses are forecast up 11% to a record $318 billion in 2011, led by higher fuel and fertilizer costs, and increasing outlays for crop insurance. Livestock producers face record costs for feed and replacement animals, which could diminish their net return prospects.

Farm asset values—which reflect farm investors’ and lenders’ expectations about long-term profitability of farm sector investments—are expected to rise nearly 7% in 2011 to a record $2,324 billion following a 6% rise in 2010. Farm land cash markets in early 2011 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 nearly 12% in 2008 and 2009. The ratio is expected to return to about 10.4% in 2011.

These data suggest a strong financial position heading into the latter half of 2011 for the agriculture sector as a whole relative to the rest of the U.S. economy. However, there is substantial regional variation. In general, the increase in expenses will affect livestock producers more harshly than crop producers. Cash grain farmers in the Corn Belt and Northern Plains are experiencing record revenues. In contrast, livestock and poultry feeders are experiencing record high feed costs that have narrowed profit margins. In addition, a severe drought in the Southwest extending into the Central Plains and the Southeast has limited grazing opportunities and hay production for cattle ranchers in the affected regions and led to substantial herd liquidation.

Date of Report: September
7, 2011
Number of Pages:
Order Number: R
Price: $29.95

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