U.S. Farm Income: ERS Report
Yesterday, the USDA’s Economic Research Service released its “Agricultural Income and Finance Outlook” report, which stated that, “All three measures of U.S. farm income are projected to decline in 2009—net farm income is projected to decline by 34.5 percent, net cash income by 28.4 percent, and net value added by 20 percent. Considerable uncertainty surrounds the forecasts of farm assets, debt, and equity in 2009, given the volatility of commodity, energy/input, and financial markets.”
The report noted that, “Average farm household income of principal farm operators—from farm and off-farm sources—is forecast to be $76,065 in 2009, down 3.5 percent from 2008. [See related graph from the report comparing farm operator household income, by source, with U.S. household income.] The recent instability in national housing and credit markets, as well as rising unemployment, has increased the economic vulnerability of some farm families to income and asset loss. The primary sources of this potential loss are financial and housing equity investments, plus income loss due to the greater risk of joblessness among farm households with off-farm labor earnings. As of 2008, average farm household income was 15 percent higher than that of all U.S. households.”
In a more detailed breakdown of the farm household income estimate, yesterday’s report pointed out that, “Average household income from farm sources is forecast to decline by 24.4 percent between 2008 and 2009, from $10,302 to $8,770; in contrast, household income from off-farm income sources is forecast to decrease by about 1 percent to $69,440. The average share of farm household income from farm sources is forecast to decline from 11 percent in 2008 to 8.7 percent in 2009. Approximately 60 percent of farm operator households have either an operator or the operator’s spouse working off-farm. Only for the households that operate the largest farms (those with sales of $250,000 or more) is average farm income greater than off-farm income in a typical year [related graph].”
With respect to government payments, ERS stated that, “Direct Government payments are expected to total $12.5 billion in 2009, a 2-percent increase above the level of payments made in 2008 (fig. 1.6). Direct payments under the Average Crop Revenue Election (ACRE) program and the direct and counter-cyclical payments program (DCP) in 2009 are forecast at $5.06 billion. Since direct payment rates are fixed in legislation and are not affected by the level of program crop prices, and the ACRE program is in its infancy, there has been little change in the volume of direct payments.
“Both counter-cyclical program payments and marketing loan benefits vary with market prices. Counter-cyclical payments are expected to be $1.23 million and marketing loan benefits to be $948 million. Cotton payments account for all counter-cyclical payments and 91 percent of all marketing loan payments. The other crops receiving marketing loan benefits are wheat, barley, wool, mohair, and pelts.”
On the issue of farm household net worth, ERS explained that, “Current income can be an unreliable indicator of the well-being of farm operator households. Many farm households generate low earnings, or even losses, from the farm business in a given year, but may experience much better financial performance over the long run. Equity, or net worth, the difference between assets and debts as of the last day of the year, is a useful indicator of this longer-term performance of farm businesses, since net worth reflects the accumulation of wealth over time. Moreover, depending on its liquidity, net worth can be an important reserve to sustain the household in years of lower income, like 2009.
“There was a modest 2.7-percent decline in the net worth of farm households from 2007 to 2008, owing largely to a decline in nonfarm asset values. However, after more than 20 years of increasing farmland values, the typical farm operator household is in a historically strong financial position [related graph].”
Yesterday’s ERS report also included this interesting graphic, which depicts a breakdown of harm household assets, and farm household debts for 2008....
From the report's table of contents:
Chapter 4Asset Values Erode For First Time in Over Two Decades . . . . . . . . . . . 26
The Value of Farm Sector Assets and Equity Declined
in 2008 and 2009. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
The Farm Sector Balance Sheet Forecast for 2009. . . . . . . . . . . . . . . . . 27
Chapter 5
Farmland’s Importance in Farm Financial Performance
and Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Capital Asset Pricing, Land Values, and Boom-Bust Cycles . . . . . . . . . 29
Financial Structure and Capital Market Imperfections. . . . . . . . . . . . . . 30
Factors Affecting Farmland Values . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Land Tenure and Leasing and the Distribution of Land Rents . . . . . . . . 31
Purchases of Farmland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Beginning Farmers’ Land Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . 35
Green Acres is the Place to Be: "The UK farmland grab"
From last year:
The hedge fund manager who bought a farm
Hedge Funds Buying Farmland
Farm visits can ease mental illness
Finally a story from John Kenneth Galbraith:
This tale is said to be told by John Kenneth Galbraith on himself. As a boy he lived on a farm in Canada. On the adjoining farm, lived a girl he was fond of. One day as they sat together on the top rail of the cattle pen they watched a bull servicing a cow. Galbraith turned to the girl, with what he hoped was a suggestive look, saying, "That looks like it would be fun." She replied, "Well.... She’s your cow."
