The financial
condition of U.S. farmers and other agricultural
stakeholders is expected to improve in 2003. Net farm income, a
measure of the sector's profitability, is forecast to be up $17
billion (49 percent) from the $35.6 billion earned in 2002 and
about 10 percent above the 10-year average. Weather through July
was favorable for crop production with the corn harvest projected
to total a near-record 10 billion bushels. Prices available to
farmers have been rising because of strong domestic and foreign
demand. Government payments to farmers are up substantially. With
continued appreciation in farmland prices, supported by the demand
for farmland for nonfarm purposes (recreation, for example), the
balance sheet for the farm sector continues to strengthen.
The farm sector is forecast to contribute $97.3 billion to the
U.S. economy in 2003, exceeded only by the $97.7 billion in net
value added in 1996. Net
value added is a measure of the income
earned by those contributing resources to agricultural production.
Of the total, $44.7 billion is projected to be earned by the stakeholders--laborers,
landlords, and lenders--who contribute resources for a predetermined
payment, thereby avoiding the risks inherent in production and
marketing. The residual, $52.6 billion, is net farm income and
will accrue to farm operators and contractors, who contribute resources
with the expectation of receiving financial rewards for sharing
in the risks of production.
Production value and expenses will rise
Crops, livestock, and the service/forestry sectors of the agricultural
economy will contribute to the sectorwide increase in value of
production, with crops up by $11 billion and livestock by more
than $7 billion over 2002. Government payments are projected to
be up $8.6 billion in 2003. Higher production expenses are expected
to offset no more than 30 percent of the rise in value of production
and government payments.
In 2003, total production expenses are forecast to rise by $10.9
billion (5.7 percent), the largest increase since 1997. Feed, purchased
livestock, fertilizers, and hired labor make up the largest expense
components. For 2003, there is a forecast rise of between 3 and
6 percent across the whole range of expenses. The largest increase
is a 21-percent rise in fuel and oil expenses, due primarily to
a 24-percent increase in composite (foreign and national) prices
for petroleum. Double-digit increases are also projected for fertilizer,
due to higher prices; marketing, storage, and transportation, due
to a rise in general input prices and the anticipated 8-percent
increase in crop output; and net rent to nonoperators, due to the
increase in crop output and government payments. The only expense
likely to fall in 2003 will be non-real estate interest as the
result of a decrease in interest rates.
Incomes of farm households continue to rise in 2003
Farm
operators’ household income will continue to rise in
2003 for the third straight year. Forecast at $67,603, average
income will be 2.8 percent higher than the $65,757 earned in 2002.
Off-farm and farm sources of earnings will both contribute to the
increase in household income. Higher crop and livestock receipts
and an increase in government payments of about $4,000 per operator
household contribute to higher self-employment income from farming.
The dominant source of earnings for farm households, on average,
will continue to be income earned from off-farm sources. These
include both earned sources such as wages and salaries and unearned
sources such as Social Security and other public programs. Off-farm
income is expected to rise about 2 percent, on average, to $63,635
this year. At this level, off-farm sources of income will account
for about 94 percent of the total incomes of operator households.
Income prospects differ among farms
Net cash income represents funds that are available to farm operators
to meet family living expenses and make debt payments. Nationally,
farm businesses'
net cash income is forecast to increase by 14 percent in 2003.
Not all farm types or regions will experience similar income growth.
Differences in the value of crop and livestock production, levels
of government payments, and the levels and types of inputs purchased
by farmers account for the diversity of income prospects in 2003.
Average net cash incomes are expected to be higher for all livestock
farm businesses. Farms that specialize in cattle and hog production
will see the largest income gains. Even with lower production, prices
will increase enough so that receipts outpace increases in expenses.
Hog production is in the beginning stages of a cyclical decline,
while the number of cattle placed in feedlots is declining sharply
and slaughter weights have declined due to higher feed prices.
Producers of specialty crops (vegetables, fruits, nursery products)
are especially susceptible to higher energy and labor costs (the
fastest rising expense categories in 2003). Lower average income
is expected for these farms, since modest gains in receipts will
not be enough to compensate for higher expenses. Producers of grains
and field crops, on the other hand, expect higher increases in
average net cash income. Wheat producers should see the greatest
increase (75 percent) with their largest crop since 1999, a boost
in exports, and a near doubling of government payments. Higher
prices and higher government payments will also contribute to a
substantial increase in 2003 average net cash farm income for soybean
and cash grain farms.
Concentration of commodity production explains much of the regional
variation in the income outlook for farm businesses. In 2003, income
prospects improve for most regions.
The only exception is the Fruitful Rim, where mostly specialty crops are grown. The Prairie
Gateway (cattle, wheat, and cotton) and Mississippi Portal (cotton,
soybeans,
hogs) will have the largest increase in average net cash income.
Even with the income recovery expected in 2003, several regions'
income will remain below the 1998-2002 average. In addition to
the Fruitful Rim, these include the Eastern Uplands, Northern Crescent,
and Heartland.
Farm balance sheet continues to strengthen through 2003
U.S. farm business sector assets in 2003 are forecast to rise
3.2 percent from $1.29 trillion in 2002. The value of farm real
estate, accounting for 80 percent of the sector's assets, is expected
to increase by 3 percent. The increase in 2003 net cash income
is anticipated to support further growth in farmland values, though
at a slower rate than the rapid gains of 5 percent in 2002, 5.2
percent in 2001, and 6.8 percent in 2000. On average, farm real
estate values grew 4 percent annually during the 1990s.
Farm business debt is expected to rise about 3 percent in 2003,
approaching $206 billion by the end of the year. Farm debt reached
nearly $201 billion at the end of 2002, surpassing its previous
record level (in nominal terms) of $193.8 billion set in 1984.
Sector equity (net worth) is expected to rise more than 3 percent
in 2003, as the gain in asset values exceeds the increase in debt
levels by about $36 billion.
The farm
business balance sheet has stabilized over the last 10
years. Debt-to-asset ratios for the farm sector have ranged between
15.5 percent and 16 percent since 1993, as increases in debt typically
have been offset by larger gains in farm asset values. With farm
real estate values rising faster than farm mortgage debt, the degree
of farmland leverage has declined slightly. This has provided farm
investors with an added equity cushion to lessen the impact of
any short-term declines in income or asset values.
Despite several years of weak commodity prices, owning a farming
operation has been an important wealth-building tool for many farm
operator households. The average value of farm assets on family
farms is expected to approach $665,000 in 2003. With average farm
debt of about $65,000, the calculated average net worth of family
farm businesses is expected to approach $600,000.