Farm Income a Record

September 26, 2001

USDA's Economic Research Service forecasts 2001 net cash farm income at $60.8 billion, an increase of $3.3 billion from last year and slightly above the previous record set in 1993. 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 years production. Additions to inventories are treated as income, and nonmoney items such as depreciation and the consumption of farm-grown food are included.

The report also says government payments will 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% 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. However, off-farm earnings are up 1 percent, slightly less than last year, so total household income is expected up this year. While up in nominal terms, the general economy has slowed down this year, which may in turn affect wages and salaries for off-farm earnings.

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%, as the combination of a 23% increase in dairy cash receipts and a 4% increase in cash expenses translate into improved net earnings.

Crop farms, on the other hand, may not fare as well, according to the report, 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% of 2000 gross cash income on wheat farms, while government payments contributed more than 30%. Fertilizer accounted for more than 23% of cash expenses.

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

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% 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 non-operator landlords, with the other two-thirds (about $20.9 billion) attributable to farm operators.

The full report will be released electronically in approximately two weeks and can be found on the ERS website at http://www.ers.usda.gov/publications/so/view.asp?f=economics/ais-bb/. Current forecasts in text and spreadsheet format are available at http://www.ers.usda.gov/briefing/farmincome.