New farm income report a mixed bag, driven by livestock sector

WASHINGTON – The USDA’s Economic Research Service forecasts 2001 net cash farm income at $60.8 billion, up $3.3 billion from last year and slightly above 1993′s previous record.

This cash-based concept measures the total income farmers receive in a given year, regardless of the year in which the marketed output was produced. It indicates the availability of funds to cover cash operating costs, finance capital investments and savings, service debts, maintain living standards, and pay taxes.

Net farm income is forecast at $49.4 billion, up $3 billion from last year. This accrual-based concept measures the profit or loss associated with a given year’s production. Additions to inventories are treated as income, and nonmoney items such as depreciation and the consumption of farm-grown food are included.

Uncle Sam helps. Government payments continue to be an important source of farm income. While down slightly from last year, supplemental appropriations this past summer will keep payments above $20 billion for the third consecutive year.

Average farm household income for 2001 is forecast up less than 1 percent from last year. Continuing low crop prices will contribute to the drop in the farm component of total household income, which has fallen for the fourth year in a row.

Off-farm earnings are up 1 percent, slightly less than last year, so total household income is expected up this year.

Dairies fare well. For commercial-size operations, this year’s economic conditions have favored those farms specializing in livestock production.

Dairy operations are projected to show the most improvement in 2001, with average net cash income rising almost $40,000 per farm.

Higher milk prices are likely to push gross livestock product sales up $50,000 per farm, more than offsetting the anticipated $4,000 rise in feed expenses and $2,000 increase in fertilizer expenses.

Dairies are expected to fare well in relative terms. Net cash incomes are expected to rise 54 percent, as the combination of a 23 percent rise in dairy cash receipts and a 4 percent increase in cash expenses translate into improved net earnings.

Grain farms hit hard. Crop farms, on the other hand, may not fare as well, due to a combination of lower government payments and possibly lower crop prices. Wheat farms are projected to see net cash income drop by about $9,000 per farm in 2001. Crop receipts accounted for more than 44 percent of 2000 gross cash income on wheat farms, while government payments contributed more than 30 percent.

Fertilizer accounted for more than 23 percent of cash expenses.

The value of farm real estate increased 4.1 percent in 2000 and is expected to increase by an average of 3 percent in 2001. Demand for land for urbanization and recreational purposes, favorable mortgage interest rates, and farm program payments are supporting farmland values.

Debt is rising. Farm sector debt is rising. While cash receipts are anticipated to rise, reduced assistance from the federal government and rising fertilizer and fuel expenditures will reduce cash flows available to many farmers to meet their current debt service needs.

Farm loan interest rates have fallen below 9 percent and are expected to drift lower in 2002.

Farm business equity is expected to continue rising in 2001 as farm asset values rise more rapidly than farm debt. In current dollars, sector net worth is estimated to be $1,003.9 billion, up almost $31.3 billion over 2000.

Data from the 1999 Agricultural Economics and Land Ownership Survey indicate that about a third of the $31.3 billion increase in equity (about $10.4 billion) will accrue to nonoperator landlords, with the other two-thirds (about $20.9 billion) attributable to farm operators.

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