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Policy Journal

December 11, 2009
By: Roger Bernard, Farm Journal Policy and Washington Editor
 
 

Economic Turmoil Reflected in USDA Farm Income Forecasts

While U.S. agriculture hasn't felt the brunt of the economic downturn, reduced demand for ag goods is affecting farmers' bottom line. Recently, USDA altered its 2009 net cash farm income forecast to $69.8 billion, up $1.6 billion from its August forecast but still down nearly $28 billion versus 2008. Year-end net farm income is forecast at $57 billion, down $30 billion (34.5%) from 2008 and down $6.5 billion from the 10-year average but still the eighth largest figure.

Many view the net cash farm income figure as more accurate since it reflects the sale of carryover stocks from the prior year. Net farm income reflects only earnings from production in the current year.

Other highlights from the updated forecast by USDA's Economic Research Service (ERS):
 

  • With large quantities of most grains and oilseeds available for market, ERS says, lower prices have pulled down receipts and production value from 2008's record levels. While crop production value is expected to decline 10% in 2009, ERS still projects it to remain $46 billion higher than the average value from the previous 10 years.
  • Food grains, feed crops, fruit and tree nuts, and cotton are experiencing large declines in cash receipts, while slight increases are expected for oil crops, vegetables and melons.
  • ERS expects the total value of livestock production to decline by $22.4 billion, led by a $10.9 billion drop in dairy production and a $7.5 billion decline in sales of meat animals (cattle, hogs and sheep). ERS forecasts dairy receipts down one-third as milk prices are expected to drop by $6 per cwt. from 2008.
  • On the cost side, the picture has actually improved from the record-high level of $290 billion in 2008. For 2009, ERS forecasts total expenses will decrease $11.9 billion (4.1%) to $278.1 billion, the second highest level ever. This forecast is $2.7 billion (1%) lower than ERS predicted in August, with 10 expenses decreasing $100 million or more, due mostly to revised price factors.
  • After jumping almost 16% in 2008, ERS notes, prices paid for production inputs, interest, taxes and wages should drop more than 3% in 2009, the first decrease since 2002.
  • After rising $5 billion (12%) in 2008 and $18.9 billion (67%) during the past three years, feed expenses are expected to drop $3.5 billion (7.5%) in 2009. This is due to a projected 6% fall in prices paid for feed and a 1.6% decline in livestock output.
  • After increasing $8.5 billion (21%) in 2008 to $49.4 billion, principal crop-related expenses are forecast to fall $3.8 billion (7.6%) to $45.6 billion in 2009. Seed expenses are up significantly, but fertilizer expenses are forecast to decline even more.
  • Farm sector asset values are forecast to decline 3.1%, from $2.005 trillion in 2008 to $1.944 trillion this year, reflecting lower-than-expected returns on farm investments. Farm sector debt is expected to remain steady at $239 billion in 2009. Although the farm sector's debt-to-asset and debt-to-equity ratios are expected to rise in 2009, these solvency indicators are still considerably below the levels experienced during the 1981–86 farm financial crisis, ERS says.


 



Add Another Acronym to the List: DELAP

USDA aims to start making $290 million in aid payments to dairy producers that were approved as part of the fiscal year (FY) 2010 ag appropriations bill. Currently, the program is known as DELAP: Dairy Economic Loss Assistance Payment.

So far, USDA has provided only general information on program details. The final rule—which will provide details on provisions and procedures for the program—is to be published in the Federal Register sometime in mid-December.

The plan will use the Milk Income Loss Contract (MILC) data from FY 2009 to "determine eligible payment quantities and benefit amounts.” This should speed payments and eliminate a sign-up for those producers.

Producers who are not in MILC for FY 2009 will have to sign up for the aid once the DELAP final rule is in the Federal Register.

Using the MILC program data to make the payments could end up creating quite a stir in Washington. Recall that Sen. Barbara Boxer (D-Calif.) put a hold on the ag spending bill until she received assurances that the aid would not be skewed toward smaller producers.

 



USDA, Department of Justice Set Workshops on Ag Concentration 

Dates and locations of joint public workshops that will explore competition and regulatory issues in the agriculture industry have been announced by the Department of Justice (DOJ) and USDA.

The Iowa session could include appearances by Sen. Chuck Grassley (R-Iowa) and Iowa Attorney General Tom Miller. Of course, Iowa is also the state where USDA Secretary Tom Vilsack was governor.

With the focus on dairy issues given the difficulties that industry faced in 2009, the selection of Wisconsin as a site is not too surprising.

Perhaps the most interesting aspect that has Washington ag circles talking: Meetings around the country wrap up in August, but the session scheduled for the nation's capital doesn't take place until after voters go to the polls in November.The issue of concentration in the ag industry is one that the Barack Obama administration has placed great importance on, and these sessions are viewed as one way for them to deliver on that pledge.

The Washington, D.C., session is also expected to include "discussions from previous workshops” that will be "incorporated into the analysis of agriculture markets nationally,” according to DOJ and USDA.

Scheduled Sessions

March 12, 2010, Ankeny, Iowa. Focus: issues of concern to farmers, including seed technology, vertical integration, market transparency and buyer power May 21, 2010, Normal, Ala. Focus: poultry industry, including production contracts, concentration and buyer power

June 7, 2010, Madison, Wis. Focus: dairy industry, including concentration, marketplace transparency and vertical integration

Aug. 26, 2010, Fort Collins, Colo. Focus: livestock industry, including beef, hog and other animal sectors; may include enforcement of the Packers and Stockyards Act and concentration

Dec. 8, 2010, Washington, D.C. Focus: margins, including discrepancies between prices received by farmers and prices paid by consumers

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FEATURED IN: Farm Journal - December 2009

 
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