Breaking the law of averages


If you stand with one foot in a bucket of boiling water and the other foot in a bucket of ice, the law of averages says you should be pretty comfortable.

Tell that to your foot missing its scalded skin and to the other foot with frostbitten toes ready to fall off.

I thought of that analogy of averages when I read the USDA’s latest farm income report that declares net cash commercial farm income will increase nearly 26 percent from 2002, and the average farm household income will increase to $65,789 in 2003.

Average, schmaverage. I’d say the average farm household income in 2002 was either in the boiling bucket or the big chill and is likely to stay there in 2003.

Most farm families will be well below the average this year, and that increase over 2002? Well, it’s going to take a big rebound to climb out of the 2002 weather hole, particularly if you’re milking cows.

After saying farm income will increase with one breath, with its next breath the USDA says “the 2003 income of livestock producers (except hogs) is expected to remain below the 1997-2001 average.”

We should be happy that farm income looks better this year than last year, even though we’re still lower than six years ago?

Oh, and “producers who earn the majority of commodity receipts from vegetables, fruit and nursery products” can expect “a decline in average net cash income” for 2003. Why? Well, it’s an old story: Inputs are increasing at a higher rate than cash receipts.

Did we mention commercial farms? Average net cash income is expected to increase by 12 percent, but it’ll still be 9 percent lower than the 1997-2001 average.

Once more, I sound my alarm at the chunk of farm change that comes from direct government payments. There’s an 80 percent increase in direct government payments from 2002.

Breaking the law. I am not a pessimistic person. I am, however, a realist. No two farms are alike; no two farm managers are alike; no two farm incomes are alike. There are those of you standing in buckets of only lukewarm water. That’s good.

There are signs that we’ll break the law of averages and come out OK. It looks like livestock prices, except for dairy, are moving up, as are crop prices.

On the global front, U.S. goods are cheaper because of depreciation of the U.S. dollar against foreign currencies, and that moves exports, which move prices.

Farm equity is also climbing, driven by rising prices for farmland. You can look at that as a good thing or a bad thing, but your investment just increased in value, so I’d say that’s a good thing, too.

Be cautious and be smart. Pay down debt when you can. Look for little ways to improve herd production.

And stop reading USDA farm income reports.


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