Net farm income forecast to be down in 2009
Net farm income is forecast to be $71.2 billion in 2009, down $18.1 billion (20 percent) from the preliminary estimate of $89.3 billion for 2008. Still, $71.2 billion would be 9 percent above the average of $65 billion earned in the previous 10 years.
Net cash income, at $77.3 billion, is forecast down $16.1 billion (17 percent) from 2008 but still 7.6 percent above its 10-year average of $71.8 billion. Net cash income is projected to decline less than net farm income primarily because it reflects the sale of $1.8 billion in carryover stocks from 2008. Net farm income reflects only the earnings from production that occurred in the current year.
- After reaching record levels in 2008, all three measures of sector earnings are forecast to decline in 2009.
- Net cash income would fall 17 percent, but remain above the previous 10-year average of $71.8 billion.
- Net value-added and net farm income would also decline from record levels but remain well above previous 10-year averages.
- Total expenses are forecast to decline for the first time since 2002.
- The 2007 and 2008 increases in farm expenses, at $20.5 billion and $36.2 billion, respectively, were the largest year-over-year absolute changes on record.
- The $13.5-billion decline in expenses projected for 2009 would still leave farm expenses 9 percent higher than in 2007.
- The 2009 forecast would also be the first decline in crop receipts since 1999.
- Crop receipts have increased by 20 percent or more in each of the last 2 years; at $162.4 billion, 2009 receipts would be the second highest on record.
- Government payments are forecast to fall in 2009 to their lowest level since 1997.
- Most of the decline from 2008 is due to lower projections for ad hoc and emergency assistance payments.
In 2008, the farm sector was whipsawed by highly volatile domestic and international macroeconomic forces. Prices of both farm commodities and farm production inputs spiked in the first half of the year and then plunged in the latter half. The U.S. farm sector is perhaps more intertwined with the world economy than ever. Demand arising from both the growing populations and rising incomes in other countries has expanded markets for farm commodities and increased competition for critical production inputs such as fuel, feed, and fertilizer.
Commodity production in 2009 can be forecast with some confidence, assuming that weather patterns adhere to recent trends. Local and regional production patterns have been established largely due to relatively constant soil attributes and weather conditions. The production decisions of individual farmers are limited by these characteristics and guided by good production practices, such as crop rotations to control disease and pests and to maintain soil fertility. Nonetheless, yields are a critical component of production levels, and production quantities are never precise until the harvest occurs.
In contrast, the forecasting of prices received and paid by farmers is highly uncertain. Volatile international markets can drive farm prices up and down, and have made farm income forecasts more treacherous of late.
The record net farm income in 2008 was driven by a large increase in the value of crop production that was only partially offset by rising costs of production for the farm sector. The value of crop production exceeded its previous record (set in 2007) by $31 billion, a 21-percent increase. Prices of major crops (corn, soybeans, wheat) trended upward in late 2007 and continued doing so in the first part of 2008 as the remainder of the 2007 harvest was marketed. These prices declined in the latter months as the 2008 harvests occurred, but remained high by historic standards. Exports were strong as a weak dollar relative to other currencies made U.S. commodities more competitive in international markets, and ending-year stocks of many commodities were low. Commodity prices trended downward late in 2008 as the national and world economies softened.