Net Farm Income Forecast at Record
$87 Billion in 2008
Net farm income is forecast
to be $86.9 billion, little changed from the previous
record $86.8 billion farmers are estimated to have earned
in 2007, and 42 percent above the 10-year average of $61
billion.
Net cash income, at $90.7
billion, is forecast to be $3.3 billion (4 percent) above
2007 and 33 percent above its 10-year average of $68 billion.
Net cash income is projected to rise more than net farm
income because of the carryover of 2007 crops, which are
being sold in 2008.
The story for 2008 is twofold, with a large increase
in the value of crop production that is offset by rising
costs of production for the farm sector. The value of
crop production, at $181
billion, is forecast to exceed its previous record (set
in 2007) by $30 billion, a 20-percent increase. Prices
of major crops (corn, soybeans, wheat) were trending upward
in late 2007 and continued doing so in the first part
of 2008 during the marketing of the remainder of the 2007
harvest. These prices have declined in recent months as
the 2008 harvests have occurred but are still high by
historical standards.
The values of livestock production and livestock cash
receipts are projected to increase about 4 percent
in 2008. Higher sales are projected for all major animal
sectors, including broilers, hogs, eggs, cattle, and turkeys.
The one exception is dairy.
In 2007, net farm income was at a record level and ended
the year strong with many key economic indicators at very
favorable levels. Commodity prices were above recent levels
and in some cases (wheat, soybeans, corn, milk) continued
to rise. Exports were strong as the weak dollar made U.S.
commodities more competitive in international markets,
and ending-year stocks of many commodities were low.
In the early months of 2008, commodity prices continued
to surge and remained relatively high through the first
half of 2008. Prices have since backed off as the national
and world economies have softened in recent months.
d
d
See monthly prices for crops
and livestock.
See annual prices for commodities.
Corn production
is projected to be about 12 billion bushels in 2008, which
would be the second highest on record. Soybean production
is projected to be near 3 billion bushels and the fourth
highest on record despite early-season flooding in parts
of the Midwest. Consequently, with large harvests to sell
at high prices, 2008 has proven to be another good year
for the farm economy as a whole, driven by strong demand
for feed crops, oilseeds, and food grains.
There were many unknowns when forecasting farm income
in the third quarter of 2008, but based on the best information
currently available on production and markets condition
the farm sector's income measures have declined noticeably
since the August release. Net value added to the national
economy is forecast to be up about 2 percent in 2008.
Its projected value of $134.9 billion would be $2.4 billion
over 2007 and 30 percent over its 1998-2007 average.
d
The values of both crop and livestock production have
trended steadily upward since 1970. However, the year-to-year
movements in the two measures have not always been synchronized—in
2008, the rise in the value of crop production is expected
to be nearly six times that of livestock.
Feed costs are a large component of livestock expenses,
and the exceptionally high prices for feed crops are pinching
livestock producers. Rising costs cause livestock producers
to eliminate their least productive animals and cut back
in less profitable areas of their operations.
Net value added and net farm income have followed the
value of commodity production over both the long term
and in year-to-year fluctuations. Because farmers typically
do not vary their production mix dramatically from year
to year, purchases of production inputs have been relatively
stable. Thus, the direction and magnitude of annual changes
in the value of livestock production have arisen primarily
from market prices for livestock and livestock products.
On the other hand, variability in the value of crop production
is determined by both market prices and production levels.
Crop production varies with changes in yields due to weather,
plant disease, and pests.
d
See our glossary for
definitions of terms.
See the official
USDA estimates and forecast tables.
Commodity Prices
Boost Farm Income
In general, 2008 is projected to be a good income year
for U.S. crop producers, particularly for feed crops,
oilseeds, and food grains. The boost in 2008 U.S. farm
income is primarily the result of commodity prices that
have exhibited volatility during the year but have remained
strong by historic measures. In the livestock sector,
prices for cattle and milk are expected to remain well
above their average over the last 10 years. Prices for
a number of major commodities rose throughout 2008, and
attained unexpectedly high levels for corn, wheat, soybeans,
and milk. Higher prices are principally due to strong
demand from the domestic biofuels industry and from foreign
buyers. As a result, farmers have been receiving high
prices despite their high levels of production.
The growing use of crops in the production of biofuels
has increased demand for these commodities, putting upward
pressure on prices. Corn producers are the primary beneficiaries,
but soybeans are also used in biodiesel production. Prices
of other feed crops and oilseeds have also risen as corn
and soybean consumers have sought lower cost alternatives.
The resulting competition for acreage has also raised
prices of minor oilseed crops, pulses, potatoes, and processing
vegetables as processors and shippers struggle to find
reliable supplies of these crops. Inadequate rainfall
in competitor countries and increased international consumption
(from growth in population and rising incomes) has reduced
world supplies of corn and soybeans.
The combination of reduced global food supplies and
higher incomes in developing countries with large populations
is translating into rising effective demand for farm commodities,
regardless of origin. In addition, the U.S. dollar has
depreciated significantly against major foreign currencies
in recent years. The lower value of the dollar amounts
to greater effective demand for U.S. exports, boosting
farm-level prices to a level that more than offsets the
increase in production costs resulting from higher prices
on imported production inputs, particularly fuel and fertilizers
(nitrogen and potash). The value of the dollar has strengthened
in recent months which may mitigate some of these effects.
d
d
The income earned from farm production, as measured in
net value added, is distributed among stakeholders (rent,
wages, interest) and producers for their contributions
of land, labor, capital, and management acumen. The incomes
earned by stakeholders are agreed upon in advance of their
contribution to the production activity. Consequently,
their earnings are not subject to the vagaries of markets
and production. The lack of variability in their earnings
is in contrast to the sawtooth pattern of net farm income.
Producers absorb the inherent risks of both their own
production and the prices generated by global markets.
As such, they bear the brunt of losses when production
and prices decline and reap the gains when production
and price are above average.
d
End-of-Year Financial Management Strategies
Production expenses can be tricky to predict even late
into the 4th quarter of the year as farmers consider and
implement financial management strategies. One strategy
involves minimizing production costs based on the timing
of supply purchases for the following year. For example,
with fuel prices declining rapidly in the 4th quarter,
farmers can choose to fill their storage tanks late in
2008 to lock in their costs for 2009. Or they can bet
on further declines in price and buy later. Similar strategies
exist for other storable inputs, such as fertilizer and
farm chemicals.
Another set of financial strategies involves tax planning.
Farm income will be record high in 2008, so farmers may
choose to purchase inputs in advance of the new calendar
year for the purpose of reducing their net taxable income
in 2008. At the very least, this postpones a portion of
their taxes for a year. This tax savings becomes an interest-free
loan if they normally obtain short-term production loans
to finance their farming operation. If they would not
have borrowed money, they can put the tax savings in a
CD and draw interest for a year.
Farm income may well be lower in 2009, and farmers whose
income will fall enough to put them into an lower income
bracket will pay less taxes over the 2 years. This is
a benefit of income averaging. The appropriate actions
under this strategy differ and depend on forecasting in
which year less income will be earned. The farmer would
want to make advanced purchases or delay purchases depending
on the sequencing of the higher and low income years.
A wrong forecast by the farmer could result in paying
more taxes. Given the current economic trends in the farm
sector, as reflected in the recent declines in commodity
prices, it would appear likely that many farmers would
logically assume their income would be lower in 2009.
d
Not All Farmers Share Equally in Income Gains
Because of the diversity of U.S. agriculture, annual
changes in economic fortunes can vary greatly across commodities
and regions. States that are leading producers of corn,
soybeans, and wheat stand to benefit the most in 2008.
Their primary commodity prices are rising faster than
other crops. Meanwhile, their expenses are roughly equivalent
with other commodities. Thus, the Midwest and Corn Belt
should be big beneficiaries of commodity price trends.
Livestock producers are expected to see larger increases
in production expenses than crop producers due to their
heavy reliance on feed.
A number of States
in the East, Southeast, and Mountain regions are experiencing
drought.
For the most part, these States do not account for enough
farm production to have a major impact on national farm
income measures. However, farmers in regions with significantly
lower levels of production benefit less from high commodity
prices since they have less to sell.
Farmers in these regions are also typically seeing a
greater rise in production costs for such things as irrigation
and feed/hay. When gross farm income is lower and production
costs are higher, net income for individual producers
can quickly turn negative for operations affected by drought.
Value of Crop Production Expected Record High in 2008
While many major crops are expected to experience declining
prices in the latter part of calendar year 2008, overall
annual average prices in 2008 will likely be significantly
higher than in 2007. This increase in annual average prices
plus increases in quantities sold is expected to yield
large annual increases in cash receipts for most major
U.S. farm crops in 2008.
The value of crop production is expected to increase
by about $30 billion in 2008. Leading that increase is
feed crops, consisting mostly of corn, which is experiencing
record production in many States. Corn for use in ethanol
production is projected to increase about 1 billion bushels
from 2007. While corn prices have declined in the latter
part of 2008, the annual average price is expected to
be more than $1 per bushel higher than 2007. Annual cash
receipts from corn in calendar year 2008 are anticipated
to increase about $16 billion.
Cash receipts for food grains are expected to increase
$6.5 billion from 2007, with wheat accounting for 85 percent
of that increase. Wheat achieved record yields in 2008,
and total wheat harvested is up from 2007. Despite declining
prices throughout 2008, the 2008 annual wheat price is
expected to be higher than in 2007.
Cash receipts from soybean sales will account for about
93 percent of oil crop receipts in 2008. Despite an expected
decline in the annual quantity of soybeans sold, a jump
in annual soybean prices is expected to result in a $5.5-billion
increase in soybean cash receipts.
Consumer demand for cotton products has slowed and U.S.
cotton production has declined considerably due to high
expected net returns for competing crops and less favorable
weather conditions, leading to an expected $1.1 billion
decline in 2008 cash receipts.
The average price received in 2008 for fruit and tree
nuts is expected to be about 6 percent less than the average
2007 price and there are expectations of declines in quantities
sold in 2008 for avocados, sweet cherries, peaches and
pears, grapefruit, lemons, and especially pecans. However,
anticipated increases in quantities sold for other fruit
and tree nut commodities will result in higher overall
cash receipts for this broad commodity class.
Animal Sector Receipts Projected Record High in 2008
Despite Slowing Growth
The value of livestock, dairy, and poultry cash receipts
is forecast to be nearly $143.5 billion in 2008, a 4-percent
increase over 2007. This is $5.6 billion more than last
year, which was the previous record, and $17 billion higher
than the 2004-2007 average. Export demand, driven by both
a weaker dollar and a growing global standard of living,
is one of the main factors behind the record cash receipts.
The animal sector is projected to account for 44 percent
of total agricultural cash receipts in 2008. This is down
from 48 percent in 2007. This proportion changes over
time and has recently shifted toward crop production because
of high prices for corn, soybeans, and wheat.
Cash receipts for cattle and calves are expected to move
slightly upward to a new high of $50.6 billion. Cow slaughter
and heifer feedlot placements increased in 2008 as producers
liquidated breeding stock in response to higher feed costs
and drought in major hay-producing areas of the country.
Despite higher supplies and slow retail sales, prices
are forecast to be up slightly for the year due to a jump
in exports of more than 30 percent over 2007. Although
the resumption of beef trade with South Korea has been
slower than anticipated, traditional beef export customers
like Mexico and Japan have increased imports of U.S. beef
significantly.
Hog producers’ cash receipts increased 8 percent
to $16 billion in 2008 despite lower prices earlier in
the year that had many feeders operating below break-even
price levels. Sow slaughters were up this year as producers
liquidated breeding stock in response to the crunch caused
by low hog prices and high grain costs. Hog prices, which
took an early dip compared to last year, are expected
to rebound during the last 6 months of 2008. Much of this
is due to the boom in pork exports, which were up 68 percent
over 2007 levels during January-August. Exports to Russia,
China, and Hong Kong have increased dramatically over
2007.
The U.S. dairy sector saw a slight (1.6 percent) decrease
in cash receipts during 2008 after experiencing record
levels in 2007; receipts are forecast to be $34.8 billion,
down over $580 million but still well above 5-year averages.
While supplies were up about 2 percent, third and fourth
quarter fluid milk prices are expected to be down more
than $1 per cwt compared to 2007 levels. High retail prices
for milk are meeting resistance from a struggling domestic
consumers. This is placing downward pressure on farm prices
for milk. While dairy export markets remain steady, their
growth is limited by competition from a recovering dairy
industry in Australia and New Zealand.
Cash receipts for broilers are anticipated to be $23.6
billion in 2008, a 10-percent increase over 2007. While
supplies increased marginally, mostly due to heavier slaughter
weights, average prices were expected to be up 7 percent
on the year. These prices are strongly buoyed by higher
export demand. Increases in exports to traditionally strong
customers such as Mexico and Russia as well as newer customers
in Southeast Asia have missed January-August exports 21
percent above the same period during 2007.
Cash receipts from egg production are expected to increase
18 percent, reaching $7.9 billion in 2008. While production
has remained flat compared to 2007, the farm price for
eggs has increased 15 percent. The laying population,
suppressed by high feed costs, remained tight for most
of the year despite historically higher prices. Unlike
other animal sector commodities, egg exports slackened
in 2008 as tight supplies directed a larger percentage
of eggs toward the domestic market.
Production Expenses
Forecast Up Again To Record High in 2008
Following an increase of $20.5 billion (8.8 percent)
in 2007, total production expenses are expected to jump
$38.2 billion (15.0 percent) in 2008 to a nominal record-high
$292.5 billion. If realized, they will constitute 77 percent
of gross farm income, slightly more than in 2007. The
2008 increase will be the sixth straight since 2002 and,
during the period, total expenses have been climbing at
an increasing rate.
d
Since 2002, nominal expenses will have risen $100 billion
(52 percent). Inflation-adjusted expenses have increased
28.5 percent over that span, and are approaching the record
levels reached in 1979-80.
d
Five of the 17 expenses calculated by ERS are forecast
to rise more than $3 billion in 2008: feed, seeds, fertilizer,
fuels and oils, and miscellaneous expenses. Five more
should increase more than $1 billion: repair and maintenance;
total labor; marketing, storage, and transportation; net
rent to nonoperators; and capital consumption. Only three
expenses are forecast to decrease slightly: livestock
and poultry purchases and both types of interest. The
16-percent rise in prices paid for production inputs,
interest, taxes and wages is the primary factor in the
increase in expenses. Since 2002, the level of expenses
for these items will have risen 56 percent, accounting
for most of the increase in total expenses.
For the third straight year, feed expenses in 2008 are
forecast to increase substantially as they rise $8.7 billion
(23 percent) to a record-high $46.9 billion. The increase
would be the largest ever for feed, eclipsing the $6.7-billion
record set in 2007. Over the last 3 years, feed expenses
have risen $18.8 billion (67 percent). The primary cause
of the rise in 2008 feed expenses is the projected 20-percent
increase in prices paid for feed. This year’s increase
is more widespread among feed types than last year, when
feed grain prices rose 47 percent. Prices paid for feed
grains are again up more than 40 percent, but complete
feeds and concentrates are also projected up more than
25 percent in 2008. The increase in feed grains is due
mainly to hikes in corn and soymeal prices. Corn accounts
for 91 percent of feed grains used for feed, and soymeal
is the principal oil crop product used as feed. Near the
end of 2008, corn prices are still high and have remained
above 2007 levels throughout the year. Soymeal prices
were at record-high levels during the first three quarters
of 2008.
Livestock and poultry purchases are forecast to decline
$600 million (-1.1 percent) in 2008. Since cattle and
calf purchases account for more than 75 percent of this
expense, the situation in this market has the biggest
effect on these purchases. This situation is complex as
countervailing factors combine. In both 2006 and 2007,
prices of feeder cattle were lower than in 2005 because
drought and the resultant poor pasture in some parts of
the country pressured cattle into feedlots. This pressure
has been partially relieved, and the cattle and calf inventory
has been reduced by the placements. Further, beef production
should be slightly higher in 2008; exports are expanding,
and retail prices for beef were higher during the first
half of 2008 than in 2007. , high feed prices are pushing
the profitability of feedlots down and reducing the price
that they are willing to pay for feeders. Through September,
the ERS High Plains Cattle Feeding Simulator still showed
losses of almost $10/cwt (Livestock,
Dairy, and Poultry Outlook, October 2008). As
a result, the prices paid for feeders has declined 5 percent
during the year. The price for milk cow replacements has
risen 6 percent in 2008 because milk production has increased
and milk prices remain relatively high. The annual average
farm prices for hogs, broilers, and turkeys are all forecast
to be up.
The principal crop-related expenses are forecast to be
$53.6 billion, a rise of $15 billion (39 percent) over
2007. This increase is the largest on record, overwhelming
the previous record increase of $5.3 billion in 2007.
One indicator of crop-related expenses, acres planted
of the 14 field crops principal, increased 1.0 percent.
Production of fruits and nuts and greenhouse and nursery
products have also increased. Fertilizer and seed expenses
have risen appreciably since 2002. Fertilizer expenses
are up 191 percent and seed expenses have increased 71
percent since then. In contrast, pesticide expenses have
risen only 31 percent and most of that rise will have
been in 2007-08.
d
Seed expenses are forecast to increase $3.3 billion (28
percent) in 2008. Seed prices have been rising rapidly
since 2000 because of biotechnology advancements and the
resultant improved yield potential (Crop
Production Cost and Outlook, FAPRI). Prices paid
for seeds rose 12.3 percent in 2007. This rise is projected
to increase to 27 percent in 2008. April prices for field
crop seeds were up markedly. All corn seeds (biotech and
nonbiotech) were 24 percent higher than in 2007. The price
of wheat seeds jumped even more. Spring wheat seed prices
rose 244 percent from 2007.
Fertilizer expenses will be a greater concern to crop
farmers than fuel costs in 2008. Following a $3.4-billion
(25.5-percent) increase in 2007, fertilizer expenses are
forecast to rise $10.7 billion (67 percent) in 2008. Increases
in fertilizer prices are driving the increase in expenses.
The sharp increases in fertilizer prices began in December
2007. Annual average prices paid for fertilizer through
October are up 76 percent over 2007, and prices paid in
October were 106 percent higher than in October 2007.
Through October, annual average prices paid for mixed
fertilizers had risen 85 percent; for nitrogen, 52 percent;
and for potash and phosphate, 134 percent. The forecast
relies in part on prices paid for fertilizer through October
using historical quarterly purchasing patterns. , fertilizer
prices have started to abate. The prices for ammonia,
urea, and phosphate have recently fallen appreciably and
potash prices have stopped rising (FERTECON).
Another factor that points to lower fertilizer prices
in 2009 is that the cost of natural gas, the primary source
for nitrogen fertilizers, is forecast to decline in the
fourth quarter of 2008 and to fall 13 percent in 2009.
Despite the drop in prices, a combination of factors
will likely induce farmers to delay purchasing fertilizer.
Many operators will probably wait to see how far fertilizer
prices will fall before making purchases. In addition,
many fertilizer dealers are requiring full cash payments
for fertilizer, and the volatility in commodity prices
and the credit market has made farmers cautious. Their
uncertain revenue and financing in 2009 has them postponing
decisions for next year.
With the fall in corn acreage, it is likely that fertilizer
use was less in 2008. Multiplying acreage for principal
crops and their respective per-acre application rates
yields a 1.3-percent decrease in total applications. Also,
many farmers will employ practices that minimize the amount
of fertilizer they use.
Pesticide expenses are forecast to increase around $860
million (9 percent) in 2008. Year-to-date average prices
paid for pesticides are up 5.4 percent in 2008 over 2007.
Pesticide use, calculated by multiplying forecast acreage
for principal crops and their respective per-acre application
rates, is estimated down 0.5 percent. If the 2008 increase
in prices is realized, pesticide expenses will have risen
$1.9 billion (21 percent) during the last 2 years. These
increases are a departure from the movement in pesticide
expenses over the last decade. Nominal pesticide expenses
were the same in 2006 as in 1998. They declined 7.8 percent
from 1998 through 2002. From there, pesticide expenses
rose 8.4 percent through 2006.
Fuel and oil expenses are forecast to increase $3.4 billion
(26 percent) in 2008 following a $1.7-billion (15 percent)
rise in 2007. In July 2008, prices paid for fuels stood
60 percent higher than in July 2007. Like fertilizer prices,
fuel prices have risen dramatically since 2002. Nominal
annual average fuel prices have registered 6 straight
double-digit percentage increases and, since 2002, are
projected to have risen 227 percent through the end of
2008. However, prices paid for fuels have fallen since
July 2008. By the end of October, fuel prices were down
24 percent and Refiner’s Acquisition Cost (RAC)
is projected to fall 45 percent in the fourth quarter.
In late November, the price of crude oil closed around
$55 per barrel, down from nearly $150 per barrel in July (www.oil-price.net).
This fall in prices is significant because the 2003 ARMS
survey showed farmers purchasing 50 percent of their fuels
in the third and fourth quarters. Additional acreage in
2008 may increase fuel use. Electricity rates should rise
more than 5 percent, which, combined with the increase
in total output, should push electricity expenses up 7
percent.
Payments to Stakeholders (Providers of Hired Labor,
Rented Land, and Debt Capital)
Payments to stakeholders are slated to increase $2.3
billion (5 percent) in 2008. They will constitute 36 percent
of net value added, up slightly from 2007. The ratio of
payments to stakeholders to total expenses has been dropping
since it peaked at 26.5 percent in 1984. In 2008, the
ratio should decline to 16.4 percent.
Employee compensation (hired labor) is forecast to rise
$870 million (4.0 percent). This increase will be due
to a 3-percent increase in farm wage rates and increases
in the production of fruits and nuts, dairy, and greenhouse/nursery
products, farm types that are among the heaviest users
of hired labor.
Net rent to nonoperators is expected to rise $1.8 billion
(20 percent) as the result of forecast increases of about
14 percent in cash rent, 20 percent in share rent, and
7 percent in landlord government payments. The rise in
cash rent is due, in part, to a 13-percent rise in average
cash rental rates.
Total interest expenses will be down around $335 million
as both real estate interest and nonreal estate interest
expenses decline. Total end-of-year debt will be slightly
higher as real estate debt is forecast up $3.3 billion
(3.1 percent) and nonreal estate debt increases slightly.
Annual average interest rates on both outstanding real
and nonreal estate farm loans are expected to decline
from 2007 to 2008.
Government Payments
Forecast at $12.5 Billion
Direct government payments
are expected to total $12.5 billion in 2008, up from the
$11.9 billion paid out in 2007. This level is 23 percent
below the 5-year average for 2003-2007. Direct payments
under the Direct and Countercyclical Program (DCP)are
forecast at $5.23 billion in 2008, a 4 percent decrease
from 2007. Direct payment rates are fixed in legislation
and are not affected by the level of program crop prices.
Since 2004, there has been little change in direct payments
by crop year. The small fluctuations across the calendar
years are the result of changes in the number of farmers
receiving optional advanced payments in December, affecting
the share of the payment rolled into the following calendar
year.
Countercyclical payments are expected to decrease from
$1.1 billion in 2007 to $720 million in 2008. This follows
a large decrease in 2007. Of crops produced in 2006 and
2007, only upland cotton and peanuts received payments.
This is quite a change from previous crop years, when
more than half the payments for 2004 and 2005 were to
corn and a quarter of the payments were to cotton. Under
the Food, Conservation and Energy Act of 2008 (2008 Farm
Bill), the timing of countercyclical payments will change.
For the crop years 2008 through 2010, producers will receive
two countercyclical payments. A partial payment will be
made after 180 days of the marketing year and the final
payment will be made beginning the following October 1.
Marketing loan benefits—including loan deficiency
payments, marketing loan gains, and certificate exchange
gains—are projected at $90 million in 2008, down
from $1.1 billion in 2007. In 2008, upland cotton producers
realized 93 percent of the total marketing loan benefits.
The other crops receiving marketing loan benefits are
wool mohair and pelts. Although prices have declined from
their peaks in the second half of 2008, marketing loan
benefits are still not available to the remaining program
crops at current price levels.
Forecast at $600 million in 2008, Tobacco Transition
Payment Program (TTPP) payments are expected to be almost
33 percent lower than in 2007. Payments reported here
include both CCC payments and lump-sum payments. Begun
in 2005, this program provides payments over a 10-year
period to eligible quota holders and producers of quota
tobacco. Lump-sum payments to individuals are made through
agreements with third parties in return for their rights
to the 10-year TTP payment stream. Because significant
lump-sum payments were made in 2005 and 2006, actual payout
to producers is expected to continue this declining trend
beyond 2008.
Conservation programs include all those operated by the
Farm
Service Agency (FSA) and the Natural
Resources Conservation Service (NRCS) that provide
direct payments to producers. Estimated conservation payments
of $3.15 billion in 2008 reflect programs being brought
up toward funding levels authorized by current legislation.
Ad hoc and emergency program payments, forecast at $2.7
billion in 2008, include all programs providing disaster
and emergency assistance to farmers. USDA started making
disaster payments in late December 2007 as appropriated
under Title IX – Agricultural Assistance - of the
U.S. Troop Readiness, Veterans’ Care, Katrina Recovery,
and Iraq Accountability Appropriations Act, 2007. Most
of the expected $2.8 billion is being paid out to farmers
in 2008. Section 743 of the Consolidated Appropriations
Act 2008 (enacted December 26, 2007) extends the period
of loss eligibility for disaster assistance from February
28, 2007, to December 31, 2007. This is expected to provide
an additional $602 million in disaster assistance payments
to be paid out over the 2008 and 2009 calendar years.
d
2004-2008—Sustained High Earnings for U.S. Agriculture
If current commodity and input market prospects hold
for the remainder of the calendar year, 2008 will be a
record year for the value of crop and livestock production,
crop and livestock receipts, revenues from forestry and
services, total value of farm sector production, gross
value added, net value added, net farm income, and production
expenses for both purchased inputs and payments to stakeholders.
This string of records across so many components of the
farm income accounts is unparalleled in the last several
decades, and both crop/livestock operations and suppliers
of services and inputs should share in U.S. agriculture's
record economic showing.
The past 4 years have witnessed exceptional earnings
for U.S. agriculture. Including the forecast for 2008,
crop and livestock production values will each have established
new highs in 3 of the last 5 years (2004-08). Likewise,
net value added to the U.S. economy will have established
three new record highs. Net cash income has also established
multiple record highs between 2004 and 2008. The late
1980s and early 1970s were the last comparable periods
when U.S. farming enjoyed multiple years of sustained
high levels of output and income. Even on an inflation-adjusted
basis, 2008 will be an exceptional if not record-breaking
year (see table).
| Farm Income Forecasts
Grow More Refined Over 19 Months The periodic
farm income forecasts and estimates published by
ERS over the course of a crop year (5 over a span
of 19 months) can vary markedly from one iteration
to the next. For example, the first forecast of
2007 income (in February 2007) undergoes painstaking
refinement as new information comes available. Release
dates for the updated forecasts correspond with
the availability of seasonal data and annual survey
results. For example, an August 2007 update of annual
crop values benefits from preliminary output and
yield numbers as reported by producers in the field.
Likewise, production expenses can be extrapolated
from prior-year expense data and several months
of current-year input prices. Additional refinements
in November and the following February (2008) incorporate
harvest, sales, and inventory data. Ultimately,
an August 2008 estimate of 2007 farm income is published.
Individual components of the farm income accounts
adhere to different timetables and are subject to
varying degrees of uncertainty. For instance, (crop)
inventory adjustment is a residual component of
total supply (production and beginning-of-year stocks)
and use (domestic and export). Farm household income
is contingent on many factors (amount of off-farm
work hours and wage rates) that transcend crop and
livestock numbers. Government payments—which
are a function of prices, production, eligibility
rules, and ad hoc disaster legislation—are
also hard to forecast with any certainty, and that
uncertainty compounds the margin of error that measures
like net cash income are subject to from first forecast
to final estimate.
Crop and livestock receipt forecasts tighten significantly
as additional price and output data come available
during the forecast period. As a result, by harvest
time, the relative error (between forecast and actual
totals) has generally held to less than 2 percent
for total cash income and less than 5 percent for
net farm income.
Of course, in absolute terms this can amount to
as much as $4 billion across the farm sector. |
See glossary.
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