What You Need to Know: U.S. Farm Income Forecasts

November 30, 2011 06:07 AM
 

Overview: U.S. net cash farm income, at $109.8 billion, is forecast up $17.5 billion (18.9%) from 2010 and $34.2 billion above its 10-year average (2001-2010) of $75.6 billion.

Net farm income is forecast at $100.9 billion for 2011, up $21.8 billion (28%) from 2010. Net farm income reflects income from production in the current year, whether or not sold within the calendar year.

What's the difference between net cash and net farm income?
Net cash farm income reflects only the cash transactions occurring within the calendar year. Net farm income is a measure of the increase in wealth from production, whereas net cash farm income is a measure of solvency, or the ability to pay bills and make payments on debt.

Net farm income and net cash income are both projected to exceed $100 billion for the first time in 2011. However, the rates of increase in both income measures show slight decreases from the previous year. The 2011 inflation-adjusted forecasts of net value added of agriculture to the U.S. economy and net cash income are the highest values recorded since 1974.

How different regions of the country fare: This graphic says more than words can capsulize the USDA update:

FarmIncome1

How about by size of operation:
Commercial operations (sales greater than $250,000), which represent about 12% of farms and over 80% of production, are expected to experience a 17-percent increase in average net cash income.

Intermediate farms (primary occupation of farming and gross sales below $250,000), are projected to have incomes about 14% higher than in 2010. Many intermediate farms specialize in livestock production.

About 60% of U.S. farms are classified as rural residences-operators of which typically earn most of their household income from off-farm sources. The vast majority of these rural-residence farmers were employed off-farm prior to becoming a farmer, with a much larger share of both operators and their spouses having off-farm jobs. The farm operations of these households (which are excluded from calculations of average farm business income) have for many years averaged a negative net cash income, with 2011 no exception.

What about debt-to-asset ratios:
Farm real estate and non-real estate asset values are expected to rise from $2.19 trillion in 2010 to $2.34 trillion in 2011 (up 6.8%). Farm business debt is expected to fall from $246.9 billion in 2010 to $242.5 billion in 2011. As a result, farm equity is expected to increase from $1.94 trillion in 2010 to $2.10 trillion in 2011. The debt-to-asset and debt-to-equity ratios are expected to decline, indicating that the farm sector overall is more solvent than it was in 2010.

Are farm real estate assets more than farmland?
Farm real estate assets are primarily farmland, but also include other farm real estate assets such as livestock buildings and facilities for storing crops and machinery.

FarmIncome2

Debt repayment capacity utilization (DRCU) is the ratio of actual farm debt outstanding relative to the maximum feasible farm debt supportable out of farm income in any given year. DRCU is a measure of the ability of the farm sector to repay farm debt over time solely through the production and sale of farm products and services.

By the end of 2011, farm sector DRCU is expected to decrease to about 38%, down from 46% in 2010. A decrease in DRCU indicates that a smaller portion of net cash earnings is needed to repay farm debt. This decrease is expected to approach the 1973 low of 37% and is the second lowest DRCU since 1970.


Perspective: While certainly underscores we have a very healthy U.S. ag sector, it also comes at time when the next farm bill is coming into focus and this data will be used by those seeking to cut ag subsidies based on the positive income picture. Farmers have pared their debt levels down dramatically, underscored not only by the debt-to-asset and equity ratios outlined above but also on their ability to pay on what debt they have. Clearly, more sectors of the U.S. economy could take a page from agriculture.

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