September 26, 2000

Net farm income is forecast at $45.6 billion in 2000, an increase of $2.2 billion from $43.4 billion in 1999 and $400 million dollars above the 1990-99 average of $45.2 billion. USDA says this increase is due primarily to an infusion of government assistance that is likely to surpass 1999 payments by $2.7 billion.

For net cash income in 2000, the total is forecast at $55.4 billion, $800 million more than the $54.6 billion for 1999 and $800 million more than the 1990-99 average of $54.6 billion. With large supplies of most agricultural commodities and prospects for little or no near-term growth in demand, prices for major crops will likely remain low.

Farmers are continuing to add to large existing supplies of major field crops. This, in combination with a high volume of output from foreign competitors and weak export markets, is keeping prices low, says USDA. Farmers and ranchers are also encountering higher expenses for interest, labor, and fuels. To counteract this, Congress has enacted emergency legislation to soften these impacts and to boost bottom lines.

Data from USDA's 1999 Agricultural Resource Management Study survey of producers showed 41.6% of all farms received government payments. Payments averaged about $17,000 for those operations receiving payments, contributing 13% of gross cash income earned by these farms.

Total U.S. crop receipts are forecast at $94.1 billion, $900 million more than 1999. This follows a combined $18-billion decline for 1998 and 1999. Livestock receipts are also forecast to increase, led by beef and hogs.

The total for expenses is projected to increase about 4% in 2000, led by a $2.4-billion increase in fuel expenses. The two major livestock-related expenses will both increase in 2000. Feed expenses are forecast to increase just over 1%. Feeder livestock and poultry purchases are forecast to increase another 8.6% following a 10% increase in 1999.

Expenditures for the three major crop-related expenses - seeds, fertilizer, and pesticides - are expected to total $26.4 billion in 2000, a 2.4% increase over 1999. After remaining level or falling in 1999, all three expenses are forecast to rise in 2000.

At the major commodity level, 1999 costs of production showed little change from the previous year. However, with substantially lower commodity prices, net returns declined. Market prices for corn, soybeans, cotton, and wheat in 1999 were substantially less than the five-year average, running more than 20% less for these commodities and continuing their downward trend from highs in 1996. Both the 1999 harvest and marketing year average prices were at or below the 1999 loan rate, providing a strong incentive for producers to utilize features of the loan program. Loan deficiency payments were substantially higher for these crops in 1999 than in previous years.

Debt levels at the end of 2000 are expected to be unchanged from the end of 1999 as many farmers take advantage of high levels of 2000 government payments to improve their financial position by reducing debt. Despite relatively low agricultural commodity prices since 1998, the financial condition of farm operations, on average, has remained robust. One indication of the relative strength of the farm sector is reflected in the financial condition of bank farm loan portfolios.

A summary of the report is on the Internet at http://usda.mannlib.cornell.edu/reports/erssor/economics/ais-bb/2000/ais75s.asc.