Income Outlook and Financial Circumstances Vary Among
Farms
Average net cash income for farm
businesses (intermediate and commercial operations,
including non-family farms) is projected to be $59,800
in 2008. This would be a 12-percent decline from the 2007
estimate of $67,900 and put the 2008 forecast on par with
the previous 5-year average. The projected change in income
prospects for farm businesses will not affect all farm
operations in the same manner or to the same degree. There
is considerable variation in business structure, including
the extent to which assets are owned, the mix of crop
and livestock produced, the contribution of government
payments to gross income, and the relative importance
of energy inputs and borrowed capital to production costs.
Several classifications of farms—including commodities
produced and geographic location—reflect this diversity.
The income forecast across farm types reflects the dichotomy
in expected market conditions and production costs between
different crops and between crop and livestock producers
in 2008. Farms that specialize in the production of mixed
cash grains, wheat, corn, and soybeans are projected to
have the largest increases, with most of the groups reaching
their highest average net cash incomes of this decade.
For many of these producers, commodity price increases
stemming from strong biofuels demand and from foreign
buyers have outpaced substantial cost increases for important
inputs such as fertilizer, seed, and fuel. Prices were
exceptionally strong earlier in the year and are still
projected to exceed the 2007 annual average by a much
as 37 percent for corn and 28 percent for soybeans. Cash
receipts for farms that specialize in both corn and soybeans
are forecast to rise by 31 percent. Projected cost increases
are similar for these farms, with average cash expenses
expected to increase by 27 percent.
Average net cash incomes are forecast to be 25 percent
higher than 2007 for corn farms and 22 percent higher
for farms that specialize in soybean and peanut production.
For corn farms, net cash income would be 36 percent above
the previous 5-year average. In contrast, average net
cash incomes of soybean and peanut farm businesses would
be 3 percent lower than the 5-year average. Among crop
farms, the largest reduction in net cash income (-45 percent)
is forecast for farms that specialize in cotton and rice.
For these farms, the 2008 forecast would also be more
than 50 percent below the previous 5-year average. While
both receipt and government payment increases help to
boost gross cash income by 13 percent, expense increases
are much larger. The 29-percent increase in cotton and
rice expenses is due to sharp rises in costs for fertilizer
(64 percent), fuel (26 percent), and seed (28 percent).
These three inputs comprise more than half of total expenses
on farms that specialize in cotton and rice production.
For specialty crop producers, receipts are not increasing
enough to keep up with projected higher expenses. Labor,
fertilizer, and seed represent 60 percent of total cash
expenses on these farms and together are forecast to increase
by nearly 20 percent in 2008, compared with a projected
7-percent increase in crop receipts.
For most livestock producers, average net cash incomes
are expected to fall below 2007 levels, with dairy (-40
percent), and cattle operations (-27 percent) projected
to have the largest declines. Among livestock producers,
dairy farms are among the most intensive users of feed,
which represents, on average, 41 percent of total cash
expenses. Feed expenses are forecast to rise by 23 percent
and when coupled with a projected 26-percent increase
in fuel costs, gains in gross receipts for milk and dairy
product sales are quickly eroded. Dairy farm business
incomes are expected to be about 11 percent below the
previous 5-year average.
For beef cattle businesses, this would be the third
consecutive decline in average net cash income since peaking
in 2005 at $46,200. Despite higher feed costs, pork production
should be higher in 2008. Prices are also expected to
be about 1 percent above 2007 levels. As a result, receipts
for farms that specialize in hog production are forecast
to be 5 percent higher than in 2007. Cash expenses are
forecast to be up about 16 percent, led by a 23-percent
jump in feed costs. Average net cash incomes are forecast
to be 8 percent lower in 2008 and fall about 3 percent
below the previous 5-year average for hog farms.
Strong exports, particularly for broilers, are helping
to boost receipts for poultry farms, with 2008 livestock
receipts forecast to be 8 percent higher than 2007. Increasing
costs for feed and energy-related inputs are expected
to push total cash expenses 14 percent above 2007 levels.
The result is a projected 2-percent decline in average
net cash income. However, average net cash income would
be 42 percent above the previous 5-year average, leaving
poultry farms in one of the strongest earnings positions
among livestock farms at the end of 2008.
Geographic concentration of commodity production explains
much of the regional variation in the income outlook for
farm businesses. Regions with a relatively high concentration
of cash grain and soybean production, such as the Heartland
and Northern Great Plains, are the only
areas forecast to have increases in average net cash incomes.
Conversely, regions where livestock commodities dominate,
particularly dairy, or with a large concentration of specialty
crop (vegetables, fruits, nursery or greenhouse) or cotton,
or rice production are forecast to have the largest declines
in average net cash income. These would include the Northern
Crescent, Eastern Uplands, Fruitful
Rim, Southern Seaboard, and Mississippi
Portal. Among these regions, the Fruitful Rim
is the only area where 2008 average net cash income is
projected to be higher than the previous 5-year average.
With cattle being the most common farm type in the Basin
and Range region, average net cash income is projected
to be 16 percent below 2007 and 13 percent less than the
previous 5-year average. The smallest decline in average
net cash income is forecast for the Prairie Gateway
where the 2008 forecast is expected to be 11 percent below
2007 and 8 percent lower than the previous 5-year average.
There is considerable variation in projected net cash
income by size of farming operation in 2008. Commercial
operations (sales greater than $250,000), which represent
about 11 percent of U.S. farms and 75 percent of production,
are expected to see a 10-percent decline in average net
cash income. Intermediate farms (primary occupation of
farming and gross sales below $250,000) are expected to
have the largest drop from 2007, at 34 percent. About
63 percent of U.S. farms are classified as rural residences—operators
of which typically earn most of their household income
from off-farm sources. The vast majority of these rural-residence
farmers were employed off-farm prior to becoming a farmer,
with a much larger share of both operators and their spouses
having off-farm jobs. The farm operations of these households
have for many years averaged a negative net cash income,
with 2008 no exception.
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