Farm income: Anemic expectations

It’s the perfect word to describe the current farm economy: anemic.

Lacking substance or quantity; lacking vitality. Peaked. Sickly.

Gee, I’m a bearer of glad tidings, aren’t I?

I’m looking at the USDA’s latest financial forecast and the numbers are positively Scrooge-like. Before the ghosts visit.

Crop receipts in 2009? A $20 billion drop from 2008 and even less than in 2007. Livestock receipts? Down $23 billion, to 2006 livestock income levels. Government payments went mostly to cotton, rice and other non-Corn Belt commodities.

And I even hate to mention cash expenses of $246 billion, a huge jump from the $193 billion average for the past 10 years.

The bottom line — net farm income — will drop in the average farm household 3.5 percent. I know many of you will feel an even larger drop. Nationwide, U.S. real net farm income is forecast at $54 billion, the lowest since 2002. The 10-year average is $70.4 billion.

Enough of the bad news, isn’t there any good economic news to report?

A little.

The best news is that economists say our recovery is under way. Real GDP growth in the second quarter of 2009, while still in the negative column, shows strong signs of life. Both manufacturing and nonmanufacturing activity was higher in September 2009 than it was in September 2008.

But (those economists always have a ‘but’), the rebound all depends on consumer spending.

Here in agriculture, we’re not so concerned with houses or Blu-Ray players, but with food purchases. Spending on milk and beef and pork and poultry all fall during a recession. In 2008, away-from-home and at-home food sales in the U.S. both dropped about 3 percent from 2007. In 2009, away-from-home food sales dropped another 6 percent and at-home food sales fell just over 3 percent.

And if you think that doesn’t make a difference, think again. We’re talking monthly retail and food sales of $380 billion that careened to around $336 billion last December. We’re still averaging less than $350 billion/month in food sales. (All of 2006 hovered around $360 billion/month and 2007 averaged around $370 million/month.)

Will consumers go back to making more protein purchases soon? Will they head back to restaurants? At least one economist says the farm rebound “hinges on renewed strength in food and fuel consumption.”

Many are also closely watching the world grain inventories. Even though we’ve had several good, even record, crop years, the world’s corn, rice and wheat inventories will remain low, hovering just above 20 percent of annual use. That leads to the next question: What happens to prices if demand rebounds?

That same circle is eyeing U.S. agricultural exports, which skyrocketed in 2008 to nearly $120 billion. Will ag exports stay historically high or fall to 2000 levels of $40 billion? China might hold the key to that one (or it might increase its own production of key imports). It also depends on when and if the dollar returns to where it was before the U.S. economic dive.

Tell your nonfarm neighbors to go out and buy some ham and steaks and cheese for the holiday season, but you might want to temper your own spending. It will be several years before farm incomes return to 2007 or 2008 levels.