Farm Household Economics and Well-Being:
Income Forecast and Income in Perspective

Farm Household Economics and Well-Being Briefing Room Income Forecast and Income in Perspective Assets, Debt, and Wealth Additional Measures Demographics and Labor Allocations Federal Taxes and Households

This chapter presents the latest U.S. farm household income forecast for 2008 and revised preliminary estimate for 2007, income estimates for earlier years, the composition of farm household income, and comparisons of income for farm households relative to other U.S. households. Information on the distribution of farm household income in 2006 (the latest year for which detailed data are publicly available) is also reported.

Average Incomes of U.S. Farm Households Forecast Up 3.4 Percent in 2008

Estimates and forecasts of U.S. farm operator household income are based on data from the Agricultural Resource Management Survey (ARMS). Income of farm operator households presented in this briefing room differs from other farm income estimates of the farm sector or of farm businesses. In particular, principal farm operator households receive income from a variety of sources other than their farm businesses, such as wages and salaries from off-farm jobs, other businesses, dividends and interest, and other public and private sources that are included here but not in the farm sector accounts.

Key indicators include:

• Average farm operator household income is forecast to be $90,009 in 2008, up 3.4 percent from the 2007 estimate.

• Average farm operator household income was an estimated $87,031 in 2007, up 12.1 percent from 2006, and 16 percent above the 5-year average of 2002-06.

• The increase in income is the result of increases in both farm and off-farm sources. Average farm household income from farm sources is forecast to be $12,720 in 2008 (up 4 percent from the 2007 estimate); off-farm income is forecast to be $77,289 (up 3.3 percent).

• Average farm household income is estimated to have been 28.7 percent higher than U.S. average household income in 2007.

See table for details.

Farm Operators' Household Income Compared With U.S. Households

Since the 1980s, ERS has reported a money income measure for farm operator households comparable to U.S. Census Bureau's measure for all U.S. households. Farm household income is highly variable through the years, primarily due to the volatility of farm income. Nonetheless, for every year since 1996, average income of farm households has exceeded average U.S. household income. In fact, the off-farm income component (of average farm operator household income) alone has exceeded average U.S. household income from all sources since 1998.

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Distribution and Components of Farm Household Income

The remainder of this chapter examines farm operator household income in more detail, using data from 2006 and earlier years:

• Distribution of farm household incomes
• Farm operators' household income for 15 Principal farming States
• Composition of operator household income.

Distribution of Farm Household Incomes

Incomes of farm operator households vary widely. For example, in 2006, 6 percent of farm households had negative incomes and 7 percent had incomes of $200,000 or more. Many of the farm operator households that had negative incomes operated large farms which experienced heavy farm losses in 2006. Generally, as the income level of farm operator households increases, both average farm and off-farm income increase, as does the share of income from farming.

An average household income estimate for all farm operator households masks this great diversity in incomes. That is why many of the well-being indicators in this briefing room are provided in a variety of classification schemes. One way to illustrate this diversity of incomes is to chart the distribution of income, or the cumulative share of households whose income is less than or equal to a particular level. At the median, for example, 50 percent of households have less income and 50 percent have more. For farm operator households, average income exceeds median income because of the large share of high-income households in the population. In 2006, average (mean) farm income was $77,654, compared with a median of $54,835.

A cumulative distribution of 2006 household income by residence farms, intermediate farms, and large farms illustrates their different income performance. Households that operated residence farms were the least likely to have negative incomes and those that operated large farms were the most likely to have negative incomes. The distributions of income for residence and intermediate farm households were relatively similar. Their median 2006 household incomes were $58,268 and $41,467, respectively. More than 90 percent of these households had incomes under $200,000. In contrast, the median household income for operators of large farms was $98,888 in 2006, and about a quarter of them received more than $200,000 in household income.

The median income of farm households in 2006 was greater than for all U.S. households, but less than for just those U.S. households that included self-employed persons. Nevertheless, farm operator households are still more likely to have negative household incomes than either self-employed or all U.S. households.

Farm Operators' Household Income for 15 Principal Farming States

Starting in 2003, the sample size of USDA's Agricultural Resource Management Survey (ARMS) has been large enough to allow for statistically reliable estimates of farm and operator household income in 15 major agricultural States. Previous surveys did not provide sufficient information to generate comparable estimates by States.

Family farms in California realized the highest average farm household income ($120,698) in 2006 (see table). They also realized the highest average farm income. High-value crop farms comprised more than half of California family farms, and crop production contributed about two-thirds of the State's total value of production. Farm operator households in California have average incomes above the average for all households in the State. But California is not unusual in that regard. Average income of farm operator households exceeds the average income of all households in each of the 15 States for which State-level estimates are available. Because high incomes can have a strong impact on averages of a population, we also compare the median incomes of farm operator households to all households in the State. The median income of farm operator households in California was very similar to the median income of all California households in 2006 ($55,388 and $55,002, respectively).

Missouri and Arkansas had the lowest average farm operator household income among the 15 States in 2006. Farm households in both States had below-average off-farm sources of income, and Missouri had low farm income as well. Farm operator households in four States—Florida, Iowa, Kansas, and Washington—had above-average farm and off-farm incomes in 2006. The average incomes of farm households in all four States, plus Texas, exceeded $85,000 in 2006.

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Composition of Operator Household Income

In 2006, earnings from farming constituted an estimated 10.8 percent of the average income of farm operator households. Sixty-five percent of income is considered earned off-farm income—most is earned from off-farm wages and salary jobs and the rest from nonfarm businesses (see table). Retirement and other transfer income makes up about 13 percent of household income, with most coming from public sources. Other important sources of income include interest and dividend income.

The sources of farm operator household income vary considerably across this very diverse population. Not surprisingly, larger farm households realized more income from farm sources than smaller farm households. The small farm households for whom farming is not the operator's major occupation (residential/lifestyle farms) have very high average earned off-farm incomes. Since 2004, their average off-farm incomes have exceeded $89,800, mostly from off-farm work.

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Many farm households that receive government payments operate large farms, and so receive a highest share of their household income from farming sources. Government payments cannot easily be described as a share of farm operator household income because payments and business farm income are sometimes shared by multiple households—more likely the case with larger farms—and because receipt of payments often requires that farms incur costs. For example, receipt of conservation payments often requires farms to incur costs to adopt conserving practices.

However, it is interesting to consider farm operator household income sources by the level of government payment. In 2006, 42.4 percent of family farms received government payments, and most of those received less than $10,000 in payments (see table). Households operating farms that received no payments actually averaged higher household incomes than farms that received less than $10,000 in farm payments. However, the farm operator households operating farms that received $10,000 or more in farm payments had above average household incomes, as a result of their greater farm incomes. Most farm payments are commodity-related payments rather than conservation payments. Generally, the farms with the highest payments also receive a higher share of their payments under commodity programs rather than conservation programs.