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pdfA Report from the Economic Research Service
United States
Department
of Agriculture
www.ers.usda.gov
AIS-90
December 2010
Agricultural Income and
Finance Outlook
Timothy Park, Mary Ahearn, Ted Covey, Kenneth
Erickson, J. Michael Harris, Todd Kuethe, Chris McGath,
Mitch Morehart, Andrew Morton, Stephen Vogel, Jeremy
Weber, Robert Williams, and Shawn Wozniak
Abstract
Net farm income is forecast at $81.6 billion in 2010, up 31 percent from 2009 and 26
percent higher than the 10-year average of $64.8 billion for 2000 to 2009. Net cash
income at $92.5 billion would be a nominal record, 2.3 percent above the prior record
attained in 2008. Net value added is expected to increase by almost $20 billion in 2010
to $132.0 billion. Production expenses are forecast to rise moderately, reversing the
signif cant declines seen in 2009. However, nominal total production expenses in 2010
and 2009 still constitute the second- and third-highest totals ever. Farm business equity
(assets minus debt) is expected to rise nearly 4 percent, largely due to an expected
3-percent increase in the value of farm business real estate and a 2-percent decline in
farm business debt. The farm business sector’s debt-to-asset ratio is expected to decline
to 11.3 percent and the debt-to-equity ratio is expected to decline to 12.8 percent in 2010,
indicating that the farm sector’s solvency position remains strong.
Approved by USDA’s
World Agricultural
Outlook Board
Average net cash income for farm businesses is expected to increase throughout much
of the country in 2010. The expected strong recovery in dairy, hog, and cattle receipts
will result in much higher average net cash incomes for farm businesses in the Northern
Crescent, Basin and Range, and Prairie Gateway. In the Northern Crescent, where dairy
is a prominent commodity, average net cash income for farm businesses is forecast to
increase by over 58 percent. Incomes are expected to be almost 50 percent higher in
2010 for farm businesses in the Basin and Range region where cattle are an important
commodity, a region that showed the largest percentage decline in average net cash
income in 2009. Average farm household income of principal farm operators—from farm
and off-farm sources—is forecast to be $83,194 in 2010, up 7.8 percent from 2009. This
contrasts with the change for the 2008 to 2009 period, when average farm household
income declined by 3.3 percent.
Acknowledgments
The authors would like to thank David Stallings of the World Agricultural
Outlook Board and ERS colleagues Robert Hoppe, Erik O’Donoghue, and
Pat Sullivan for their reviews. Thanks also to our editor, Priscilla Smith; to
Wynnice Pointer-Napper for graphic layout and design; and to Chengxia You
for map design.
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Contents
Chapter 1
Net Farm Income Forecast Up 31 Percent in 2010 . . . . . . . . . . . . . . . . . . 2
Livestock and Cotton Receipts Expected To Bounce Back in 2010 . . . . . 3
Crop Farms To Contribute 64 Percent of U.S. Agriculture’s
Net Value Added in 2010. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Government Payments Forecast at $12.4 Billion . . . . . . . . . . . . . . . . . . 12
Spatial Concentration and Program Coverage Overlap
of Direct Payments and Crop Insurance Subsidies . . . . . . . . . . . . . . . . . 13
Why ARMS and Sector Accounts Estimates of
Government Payments Differ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Moderate Rise Expected for U.S. Farm Production Expenses . . . . . . . . 16
Chapter 2
Farm Household Income, Net Worth, and Well-Being . . . . . . . . . . . . . . 20
Trends in Farm Household Income and Net Worth. . . . . . . . . . . . . . . . . 20
Farm Household Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Household Income Sources and Financial Portfolios, by Farm Size . . . 24
Farm Households Compared With the U.S. Population . . . . . . . . . . . . . 27
Chapter 3
Earnings Differ Among Farm Businesses and Enterprises . . . . . . . . . . 28
Chapter 4
Farm Business Balance Sheet and Financial Performance . . . . . . . . . . 32
Unused Debt Repayment Capacity Expected To Increase in 2010 . . . . . 33
Net Cash Flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Pr of tability of Farm Sector Investments Rising . . . . . . . . . . . . . . . . . . . 36
Farms’ Net income and Solvency Position . . . . . . . . . . . . . . . . . . . . . . . 37
Special Article
Low Levels of At-Risk Farm Business Collateral Security
and Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Fixed vs. Variable Rate Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Potential Impact of Reductions in the Market Value
of Farm Assets on Farm Business Debt-to-Asset Ratios . . . . . . . . . . . 42
Potential Impacts of Changes in Interest Rates on Debt At Risk . . . . . . 43
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Appendix: Forecast Methods and Accuracy . . . . . . . . . . . . . . . . . . . . . . 46
Information Contacts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
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Introduction
In this report, we compare the farm business and farm household outlook in
December 2009 with the December 2010 outlook and discuss the key factors
underlying the 2010 income and f nancial outlook. Chapter 1 discusses the farm
income outlook and summarizes important drivers inf uencing the earnings of
U.S. farm operations (value of production, direct Government payments, other
sources of farm income, production expenses, and payments to stakeholders).
Chapter 2 discusses farm household income, net worth, and well-being.
Average farm operator household income is forecast to be $83,194 in 2010,
up 7.8 percent from the 2009 estimate. Current income, however, can be an
incomplete indicator of the well-being of farm operator households. Equity,
or net worth, is more useful as an indicator of longer term performance of the
farm household. In 2009, the average net worth of farm operator households
was $915,019. Although operator households typically derive most of their
wealth from farm assets, many farm households have a variety of nonfarm
investments, including f nancial investments and nonfarm real estate.
Chapter 3 presents the farm business income forecasts. U.S. agriculture
is a diverse sector represented by a complex mix of business enterprises.
Income forecasts highlight the diversity of f nancial outcomes and are based
on applying sector level forecasts and receipts and expenses to the latest
Agricultural Resource Management Survey (ARMS) data. ARMS is conducted
by USDA’s National Agricultural Statistics Service (NASS) in conjunction
with the Economic Research Service (ERS). Average net cash income for farm
businesses (intermediate- and commercial-sized operations) is projected to be
$79,200 in 2010, 30.7 percent above the 2009 estimate of $60,600.
Chapter 4 covers the market fundamental affecting farm asset values. Farm
sector debt is expected to fall to about $240 billion in 2010 with real-estate debt
dropping about 2 percent and non-real-estate debt dropping by about 3 percent.
The favorable f nancial position of the U.S. agricultural sector is highlighted by
two related indicators. First, the share of farms classif ed as vulnerable—high
debt burden (over 40 percent of assets) and negative net income—dropped in
this decade to the lowest levels that ERS has recorded. By 2009, only 5 percent
of farms were vulnerable, the result of expanding income levels and asset
values growing faster than debt. Second, entering 2010, over 60 percent of U.S.
farmers reported both positive income and relatively low farm debt and were
classif ed as being in a favorable f nancial position.
The Special Article assesses the f nancial performance and solvency of farm
businesses in the face of increased f nancial and commodity market volatility.
Agricultural debt at risk remains relatively low but early warning indicators
on delinquent and nonperforming loans held by insured commercial banks
show a rise in potential loan defaults.
In 2009, livestock farms held the largest share of debt at risk—56 percent.
Even so, if interest rates should increase in the near future, ARMS data
suggest only a modest impact on the number of f nancially stressed farms.
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CHAPTER 1
Net Farm Income Forecast Up 31 Percent
in 2010
• Net farm i ncome is forecast at $ 81.6 billion i n 2010, up 31 p ercent
from 2009 and 26 p ercent higher than the 10-year average of $ 64.8
billion for 2000 to 2009.
• Farm operations with over $1 million in 2010 sales receive almost 55
percent of U.S. agriculture’s net farm income and account for over 60
percent of U.S. l ivestock value of production while ma king up just
over 2 percent of U.S. farm operations.
• Production e xpenses a re f orecast to r ise m oderately, re versing t he
signif cant declines seen in 2009.
Net farm income is forecast at $81.6 billion in 2010, up 31 percent from 2009
and 26 percent higher than the 10-year average of $64.8 billion for 2000
to 2009. Net cash income at $92.5 billion would be a nominal record, 2.3
percent above the prior record attained in 2008. Net value added is expected
to increase by almost $20 billion in 2010 to $132.0 billion. The net value
added of agriculture to the U.S. economy in inf ation-adjusted terms reached
its two highest levels since the mid-1970s in 2004 and 2008. Inf ationadjusted net cash income has reached levels not seen since the mid-1970s.
Real net cash income has exceeded $80 billion three times from 2000 to
2009. The mid-1970s was the last comparable period when U.S. farming
enjoyed multiple years of sustained levels of high output and income.
The 2000 to 2009 decade was characterized by high and persistent levels
of volatility in agricultural commodity and input (feed, fuel, and fertilizer)
markets. This volatility is ref ected in year-to-year shifts in farm income
during the decade. Net farm income increased in 6 of the 10 years, posting an
average increase of 26.6 percent in the years with increases in farm income,
and falling an average of 23.5 percent in the 4 years (2002, 2005, 2006, and
2009) when net farm income decreased.
Net cash income includes only cash receipts and expenses and is generally
less variable than net farm income. Farmers can manage the timing of crop
and livestock sales and of the purchase of inputs to reduce the variability
in their net cash income. Nonetheless, during 2000-09, farmers’ net cash
income showed a signif cant degree of variability. In the 6 years when net
cash income rose, the average increase was 10.4 percent. In years when net
cash income decreased, the average decrease was 15.9 percent.
The values of both crop and livestock production have trended steadily
upward since 1970. However, the year-to-year movements in the two
measures have not always been synchronized. In 2010, the percentage
increase in the value of livestock production (16.6 percent) is expected to be
more than f ve times that of crop production (3.1 percent). A primary factor
driving the forecast for higher farm income in 2010 is the projected increase
in cash receipts for all the livestock categories, led by double-digit growth in
meat animals and dairy products. Net value added and net farm income have
followed the value of commodity production over both the long term and in
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Agricultural Income and Finance Outlook / AIS-90 / December 2010
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year-to-year f uctuations. Because farmers typically do not vary their production mix dramatically from year to year, purchases of production inputs have
been relatively stable. Purchased inputs have been more stable than crop and
livestock value of production, except for 2007-08, when they had double-digit
increases. Increases in expenses for purchased inputs are projected to show
an increase of 2.5 percent in 2010 after posting a 6.4-percent decline in 2009.
The recovery in farm income shows a change in the pattern observed in 2009.
The declines in all three measures of U.S. farm income that occurred in 2009
were driven by declines in annual crop cash receipts and declines in cash receipts
for all the livestock categories. The 2009 fall in farm income was attributable
mostly to large declines in crop and livestock prices at the farm level.
Livestock and Cotton Receipts Expected
To Bounce Back in 2010
Dairy receipts are expected to increase by almost a third in 2010, as milk
prices received by dairy farmers are projected to increase more than $3 per
hundredweight (cwt). Cattle and calf cash receipts are expected to increase
13 percent in 2010. Hog cash receipts are expected to increase 26 percent
over 2009 cash receipts due to stable pork demand and lower year-overyear pork production. Broiler cash receipts are expected to increase over 11
percent in 2010 due to an increase in prices and to the gradual reopening
of exports to Russia. Egg cash receipts are expected to increase slightly in
2010 due to increased exports to Asia and the European Union, more than
offsetting losses in exports to Canada and Mexico.
From 2004 through 2010, the nominal value of farm sector production of
crops and livestock increased over 25 percent (f g 1.1). Over three-quarters of
that increase ref ects gains in the value of U.S. crop production. The value of
crop production was about 49 percent of the agricultural sector’s total value
of production in 2004 to 2006, but accounted for 57 percent of the total from
2007 to 2010. Increases in the value of corn and soybean production from
2004 through 2010 accounted for 93 percent of the increase in feed crops and
Figure 1.1
Value of crop and livestock production, 1970-2010
$ billion
200
175
Value of crop production
150
Value of livestock production
125
100
75
50
25
0
1970
75
80
85
90
95
2000
05
10
Note: 2010 forecast.
Source: USDA, Economic Research Service.
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94 percent of the rise in oil crops. These increases partially ref ect the impact
that bioenergy has had on the value added to the U.S. economy by the farm
sector (table 1.1). Both corn for grain and soybean receipts are expected to
experience solid gains in 2010 ref ecting increased quantities sold at higher
prices, benef ting from anticipated increases in domestic use and exports (f g
1.2). Crop production is expected to account for about 55.6 percent of the
total value of farm sector production in 2010.
Cotton receipts are expected to experience a sharp increase in 2010. Strong
domestic and foreign demand for cotton combined with increased U.S.
production, and continued tight global supplies are expected to lead to large
increases in prices and quantities sold for both lint and seed. A rise expected
in 2010 wheat cash receipts ref ects increased domestic use and a projected
rise in exports. Declines in production are expected for apples, pears, and
grapes, while the cranberry crop is expected to exceed last year’s crop.
California is expected to produce record navel orange and walnut crops.
Total citrus production in Florida is expected to decline. Vegetable and melon
receipts overall are expected to increase despite declines in receipts for potatoes. Record yields are expected to produce a large increase in U.S. production of dry beans and higher 2010 cash receipts.
Crop Farms To Contribute 64 Percent
of U.S. Agriculture’s Net Value Added in 2010
Crop farms account for less than half of U.S. farm operations but make up
more than 70 percent of the sector’s payments to stakeholders and more than
57 percent of U.S. agriculture’s net farm income (table 1.2). Crop farms are
expected to contribute almost 64 percent of U.S. agriculture’s 2010 net value
added, with cash grain and soybean farms accounting for half of that (f g.
1.3). High-value crop farms accounted for less than 7 percent of all U.S.
farms in 2009, but accounted for nearly one-third of the value of the sector’s
crop production.
Size matters in agriculture. Bigger farm operations, while fewer in number,
contribute the bulk of the value of U.S. farm production and receive the lion’s
Figure 1.2
Annual average prices for crops, 1990-2010
$ bushel
12
10
Soybeans
8
6
4
Corn
2
0
1990
92
94
96
98
2000
02
04
06
08
10
Note: 2010 forecast.
Source: USDA, National Agricultural Statistics Service.
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Table 1.1
Value added to the U.S. economy by the agricultural sector via the production of goods
and services, 2006-10
United States
Component accounts1
2006
2007
2008
2009
2010
2000-09
average
Change
2009 to
2010
151.1
13.6
42.3
6.5
24.6
18.7
19.3
25.2
0.1
0.9
185.1
18.7
58.9
5.2
28.7
19.3
21.0
25.0
0.1
8.2
$ billion
169.0
14.4
50.2
3.5
31.9
19.0
20.6
24.1
0.1
5.3
119.3
63.7
23.4
26.6
4.8
0.3
0.5
138.4
65.1
35.5
33.1
4.9
0.3
-0.4
140.3
65.0
34.8
36.8
4.8
0.3
-1.6
119.2
58.6
24.3
32.5
4.3
0.3
-0.8
139.0
68.2
31.5
35.7
4.4
0.3
-1.1
117.2
59.0
25.9
27.9
4.4
0.2
-0.3
19.8
9.6
7.2
3.2
0.1
0.0
-0.3
36.4
2.6
1.0
13.2
19.5
38.1
2.7
0.7
14.2
20.6
42.0
3.0
0.7
17.7
20.5
42.7
4.0
0.7
17.3
20.7
42.4
4.1
0.7
16.3
21.3
33.1
2.8
0.8
12.4
17.1
-0.3
0.1
0.0
-1.0
0.6
Value of agricultural sector production
274.4
327.6
367.3
330.9
355.7
276.3
24.8
less: Purchased inputs
153.7
184.3
203.0
190.0
194.7
151.4
4.7
Farm origin
Feed purchased
Livestock and poultry purchased
Seed purchased
61.1
31.4
18.6
11.0
73.4
41.9
18.8
12.6
79.8
46.9
17.7
15.1
77.0
45.0
16.5
15.5
78.7
44.7
19.2
14.8
60.4
32.5
17.1
10.8
1.7
-0.3
2.7
-0.8
Manufactured inputs
Fertilizers and lime
Pesticides
Petroleum fuel and oils
Electricity
37.5
13.3
9.0
11.3
3.8
46.3
17.7
10.5
13.8
4.3
55.0
22.5
11.7
16.2
4.5
49.0
20.1
11.5
12.7
4.6
49.3
18.1
11.1
15.5
4.6
37.0
13.8
9.4
10.0
3.8
0.4
-2.0
-0.4
2.8
0.0
Other intermediate expenses
Repair and maintenance of capital items
Machine hire and customwork
Marketing, storage, and transportation expenses
Contract labor
Miscellaneous expenses
55.2
12.5
3.5
9.1
3.0
27.1
64.6
14.3
3.8
10.3
4.4
31.7
68.1
14.8
4.1
10.1
4.7
34.4
64.0
14.7
3.9
10.3
3.9
31.3
66.6
15.4
3.9
10.4
3.7
33.2
54.0
12.4
3.8
8.6
3.4
25.8
2.6
0.6
0.1
0.2
-0.2
1.9
6.2
0.9
0.9
1.2
1.2
7.6
0.0
15.8
0.6
9.0
11.9
0.6
10.3
12.2
0.6
10.7
12.3
0.6
10.4
12.4
0.7
10.6
16.4
0.6
8.3
0.2
0.0
0.1
126.9
144.3
165.3
142.1
162.3
132.5
Value of crop production
Food grains
Feed crops
Cotton 5.5
Oil crops
Fruits and tree nuts
Vegetables 18.0
All other crops
Home consumption
Value of inventory adjustment3 -3.6
118.7
9.1
29.4
Value of livestock production
Meat animals
Dairy products
Poultry and eggs
Miscellaneous livestock
Home consumption
Value of inventory adjustment3
18.5
17.3
24.2
0.1
Revenues from services and forestry
Machine hire and customwork
Forest products sold
Other farm income
Gross imputed rental value of farm dwellings
plus: Net government transactions
Direct Government payments
Motor vehicle registration and licensing fees
Property taxes
Gross value added
174.2
14.5
53.0
5.7
33.7
18.9
21.7
25.6
0.1
1.0
126.0
10.1
32.4
4.8
20.0
15.7
17.7
23.2
0.1
1.9
5.2
0.1
2.9
2.2
1.7
0.0
1.1
1.4
0.0
-4.2
20.1
—continued
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Table 1.1
Value added to the U.S. economy by the agricultural sector via the production of goods
and services, 2006-10—Continued
United States
Component accounts1
2006
less: Capital consumption
2007
Change
2009 to
2010
2008
2009
2010
2000-09
average
$ billion
30.1
30.3
24.3
0.2
26.2
27.0
28.7
100.7
117.2
136.6
112.0
132.0
108.1
20.0
less Payments to stakeholders
Employee compensation (total hired labor)
Net rent received by nonoperator landlords
Real estate and nonreal estate interest
43.2
21.2
7.6
14.4
46.9
24.2
7.6
15.1
50.0
25.0
9.6
15.4
49.8
24.9
9.8
15.2
50.4
25.5
10.0
14.9
43.3
21.0
8.7
13.5
0.6
0.6
0.2
-0.2
Net farm income
57.4
70.3
86.6
62.2
81.6
64.8
19.4
Net value added
Note: 2010 forecast.
explanation of terms, see box, “Farm Income and Costs: Glossary,” p. 9.
Source: USDA, Economic Research Service.
1For
Table 1.2
Shares of value of production (VOP), stakeholder payments, and
net farm income by farm production specialty, 2010
Crops farms:
Cash grain and soybean
Other f eld crops
High-value crops
Livestock farms:
Beef cattle
Hogs
Poultry
Dairy
General livestock
Total
Farms
in
2009
Crop
VOP
46.3
14.7
24.9
6.7
95.7
52.1
11.3
32.3
53.7
29.6
1.0
2.1
2.3
18.7
100.0
4.3
2.0
1.0
0.3
0.6
0.4
100.0
StakeLivestock holder
VOP
payments
Percent
5.5
4.0
1.3
0.2
94.5
32.8
10.9
22.9
22.8
5.1
100.0
Equity
holder
net
income
71.2
33.6
8.7
28.9
57.4
30.1
8.4
18.9
28.8
9.8
2.8
2.9
9.5
3.8
100.0
42.6
13.3
3.4
15.5
8.9
1.5
100.0
Note: 2010 percentages are USDA forecasts while the percent of farms is based on 2009 ARMS.
Source: USDA, Agricultural Resource Management Survey, NASS and ERS.
share of agriculture’s net farm income (see box, “Measuring Agriculture’s
Value Added and Net Farm Income”). For example, farm operations with
over $1 million in 2010 sales are expected to account for over 60 percent of
U.S. livestock value of production and almost 54 percent of U.S. agriculture’s
2010 net farm income (table 1.3).
Commercial farms—those with over $250,000 in annual sales—are expected
to account for over 80 percent of U.S. agriculture’s net value added in 2010
(f g. 1.4). Very large commercial farms—those with annual sales exceeding
$1 million—alone generate more than half of U.S. value of production and net
farm income (table 1.4) (see box, “Farm Types,” p. 10). Family farms, which
include both commercial and noncommercial farms, are expected to account
for almost 85 percent of net farm income (see box, “Farm Income and Costs:
Glossary,” p. 9).
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Figure 1.3
Distribution of U.S. net value added by farm production specialty, 2010
Dairy–9%
General livestock–2%
Poultry–10%
Cash grain and soybean
32%
Hogs–3%
Beef cattle–12%
Other field crops
9%
High-value crops
23%
Note: 2010 forecast.
Source: USDA, Agricultural Resource Management Survey, NASS and ERS.
Measuring Agriculture’s Value Added and Net Farm Income:
Farm-Sector and Farm-Level Approaches
USDA measures U.S. agriculture’s value added and net f arm income using two
approaches: one ba sed on agg regate farm-sector d ata a nd t he se cond ba sed on
farm-level data. Both approaches generate data used in this publication’s tables
and f gures. Tables and f gures relying on value-added measures from the farmlevel accounts have as a source line “USDA, Agricultural Resource Management
Survey, NASS and ERS.”
Farm-sector approach
The farm-sector approach relies on farm-sector data obtained from a wide variety
of sources, including farm-level data from ARMS, USDA’s survey of individual
farm-level operations conducted by the National Agricultural Statistics Service
(NASS) in conjunction with the Economic Research Service (ERS). In general,
sectorwide data neither identify nor distinguish individual farms. Therefore, the
sector approach is restricted to constructing sector totals for different value-added
measures for the United States.
Farm-level approach
The farm-level approach relies almost entirely on ARMS surveys of individual
farm operations. The advantage of using farm-level data is that it allows ERS to
look at the distribution of value-added at the farm level rather than estimating a
single farm-sector estimate. Farm-level data make it possible to identify and distinguish the differing contributions of U.S. value added among stakeholders and
equity holders, specialization of farm output, and sizes of farm operation. Each
year, ARMS produces a farm-level estimate of value added that is as consistent as
possible with sectorwide measures of value added and its components. Weighted
estimates of farm-level value added are compared with sectorwide estimates produced from multiple sources of data as a check for consistency.
7
Agricultural Income and Finance Outlook / AIS-90 / December 2010
Economic Research Service/USDA
Table 1.3
Share of net value added (NVA), value of production (VOP), net farm
income, and stakeholder payments by sales class, 2010
$1 million and above
$500,000 - $999,999
$250,000 - $499,999
$100,000 - $249,999
Below $100,000
Total
Farms
in
2009
NVA
Crop
VOP
2.3
3.4
4.5
6.7
83.1
51.4
17.8
12.3
8.7
9.8
Percent
43.7
61.4
21.2
14.2
16.0
8.4
10.4
6.9
8.7
9.1
100.0
100.0
100.0
StakeLivestock holder
VOP
payments
100.0
Equity
holder
net
income
47.7
17.9
13.0
9.0
12.4
53.9
17.7
11.9
8.5
8.0
100.0
100.0
Note: 2010 percentages, columns 2-6, are USDA forecasts; farms in 2009 is based on 2009 data.
Source: USDA, Agricultural Resource Management Survey, NASS and ERS.
Figure 1.4
Distribution of U.S. net value added by farm typologies, 2010
Commercial nonfamily–15%
Retirement–3%
Residential lifestyle–4%
Farming occupation:
Low sales–4%
Commercial family:
Very large–55%
Farming occupation:
High sales–7%
Commercial family: Large–12%
Note: 2010 forecast.
Source: USDA, Agricultural Resource Management Survey, NASS and ERS.
Table 1.4
Shares of value of production (VOP), stakeholder payments, and net
farm income by farm typologies, 2010
Equity
Stakeholder
Livestock holder
net
VOP
payments income
Farms
in
2009
Crop
VOP
Rural residence family
Retirement
Residential/lifestyle
61.4
20.1
41.3
6.1
1.9
4.2
Percent
5.9
1.4
4.5
8.3
1.5
6.8
6.3
3.4
2.9
Intermediate family
Farming occupation—low sales
Farming occupation—high sales
26.3
21.3
5.0
12.2
4.4
7.8
9.7
4.2
5.5
12.2
5.6
6.6
9.8
3.0
6.8
9.5
4.3
5.2
68.5
15.2
53.3
68.0
8.1
59.9
63.5
12.2
51.3
69.0
11.6
57.4
97.2
86.8
83.6
84.0
85.1
2.8
100.0
13.2
100.0
16.4
100.0
16.0
100.0
14.9
100.0
Farm typology
Commercial family
Large
Very large
Family farms
Nonfamily
Total
Note: 2010 percentages, columns 2-5, are USDA forecasts; farms in 2009 is based on 2009 data.
Source: USDA, Agricultural Resource Management Survey, NASS and ERS.
8
Agricultural Income and Finance Outlook / AIS-90 / December 2010
Economic Research Service/USDA
Farm Income and Costs: Glossary
A full glossary is available at www.ers.usda.gov/Data/
FarmIncome/Finfidmu.htm.
Net Value Added
Net value added represents:
• the total value of the farm sector’s production of goods
and services, less payments to other (nonfarm) sectors
of the economy
• production agriculture’s addition to the national
economy
• the sum of the economic returns to all the providers of
factors of production; farm employees, lenders, landlords, and farm operators.
ERS value-added estimates are used by the U.S. Department
of Commerce’s Bureau of Economic Analysis in the development of the National Income Accounts and Gross Domestic
Products as well as by the Organization for Economic
Cooperation and Development in its international agricultural accounts.
Net Farm Income
Net farm income is the portion of the net value added by
agriculture to the national economy earned by farm operators (i.e., the entrepreneurial earnings of those individuals
who share in the risks of production and materially participate in the operation of the business). Farm operators typically benefit most from the increases and assimilate most of
the declines arising from short-term, unanticipated weather
and market conditions.
Net Cash Income
Net cash income is the cash earnings realized within a calendar year from the sales of farm production and the conversion of assets, both inventories (in years in which reduced)
and capital consumption, into cash.
Stakeholders
Stakeholders are individuals and institutions that contribute factors of production (land, labor, and capital) to farming operations for a rate of return fixed in advance of the
production factors’ use in production. Land is rented from
landlords, laborers are paid a wage, and interest is paid on
money borrowed from lenders. In each case the earnings are
agreed upon in advance, so the contributor bears no risks of
the uncertainties inherent in production and marketing of
the output.
Farm Operators
Farm operators, contractors, partners, and other investors
also contribute factors of production but are distinguished
from stakeholders because they do so in order to share in
the profits and thereby assume the risks of production and
markets. Profits are determined as the residual after payment for purchased inputs, making allowances for replacing the capital consumed in the production processes.
Managerial skills in production and marketing are another
factor contributed by stakeholders that affects the profits
and thus their earnings.
Prominent among other investors are family members, particularly parents and siblings, who have an ownership interest in the farm or family corporation but don’t perform the
management functions of the principal operator. They may
manage a particular function (bookkeeping, fieldwork, tending to the livestock, etc.), work only in critical stages in production, or have full-time work off the farm and contribute
only their owned capital. The remuneration for their contributions of land, labor and/or capital will be a share of the
profits (if any) that are not known until production processes
and marketing are completed.
Returns to Operators
Returns to operators, as with net farm income, is a measure
of the earnings of farm operators (defined as those individuals who share in the risks of production and materially participate in the operation of the business) from production of
commodities and farm business activities.
Inventory Change
The inventory components of crop and livestock output represent the value of the change in inventories as opposed to
the change in the value of inventories. Under the concept
of national income accounting, income is a measure of the
net value of production occurring within the calendar year.
Changes in the value of stocks produced in prior years as a
consequence of price changes are not appropriate for inclusion as income. Thus, the quantity changes in inventories
are computed and then valued at calendar-year weightedaverage market prices in order to avoid the inclusion of the
effects of capital gains and losses on stocks of farmer-owned
commodities held in inventory.
Farm-Related Income
Farm-related income is the value derived from those economic activities reliant on resources of the farm enterprise
in addition to crop and livestock output. Examples are custom harvesting for cash, forestry sales, and the imputed
rental value of the farmhouse.
9
Agricultural Income and Finance Outlook / AIS-90 / December 2010
Economic Research Service/USDA
U.S. agriculture’s annual net value added is split among its equity holders and
stakeholders. Farm-equity holders’ share is referred to as net farm income.
Equity holders can expect their share of U.S. agriculture’s net value added to
increase in 2010 (table 1.5). Contractors (who contract with farmers to receive
animals and products at the farm level and move them to slaughter/wholesale) are expected to accrue the greatest annual share increase, ref ecting the
large expected increase in livestock value of production. Geographically, the
Heartland and Fruitful Rim regions contribute half of U.S. agriculture’s net
value added (f g. 1.5).
Farm Types
Small family farms
(gross farm sales less than $250,000)1
Retirement farms. Small farms whose operators report they are retired, although
they continue to farm on a small scale. These operations sell enough farm products (at least $1,000 worth) to qualify as farms under the current farm def nition.2
Residential/lifestyle farms. Small farms whose operators report a major occupation other than farming.3 The category also includes a small number of farms—8
percent of the group in 2007—whose operators are not in the labor force.
Farming-occupation farms. Small family farms whose operators report farming as their major occupation.3
• Low-sales farms. Gross sales less than $100,000.
• Medium-sales farms. Gross sales between $100,000 and $249,999.
Large-scale family farms
(gross farm sales of $250,000 or more)
Large family farms. Farms with gross sales between $250,000 and $499,999.
Very large family farms. Farms with gross sales of $500,000 or more.
Nonfamily farms
Any farm where the operator a nd persons related to t he operator do n ot own a
majority of the business.
Note: Limited-resource farms are no longer a separate category in the classif cation,
starting with the 2005 Agricultural Resource Management Survey.
1USDA’s
National Commission on Small Farms selected $250,000 in gross sales in a
given year as the cutoff between small and large-scale farms (USDA, NCSF, 1998, p. 28).
2A
farm is def ned as any place that produced and sold—or normally would have
produced and sold—at least $1,000 of agricultural products during a given year (USDA,
NASS, 2008).
3Major
occupation is def ned as the occupation at which operators spent the majority of
their work time.
U.S. Department of Agriculture, National Commission on Small Farms (USDA,
NCSF). A Time to Act: A Report of the USDA National Commission on Small Farms.
Miscellaneous Publication 1545 (MP-1545). January 1998.
10
Agricultural Income and Finance Outlook / AIS-90 / December 2010
Economic Research Service/USDA
Table 1.5
Distribution of net value added among resource owners, 2006-10
2006
2007
Stakeholders:
Hired labor
Lenders
Nonoperator landlords
44.3
21.9
11.3
11.1
35.1
16.9
9.1
9.1
Equity holders
Family farm operators
Nonfamily farm operators
Contractors
55.7
34.4
9.3
12.0
100.0
2008
2009
2010
40.0
20.0
9.4
10.6
44.9
22.8
10.3
11.8
38.1
19.6
8.5
10.0
64.9
44.6
8.4
11.9
60.0
44.1
7.0
8.9
55.1
40.8
6.7
7.6
61.9
43.3
7.2
11.4
100.0
100.0
100.0
100.0
Percent
Total
Note: 2010 forecast.
Source: USDA, Agricultural Resource Management Survey, NASS and ERS.
Figure 1.5
Regional distribution of value added, 2010
Northern Crescent–12%
Northern Great
Plains
6%
Southern
Seaboard–9%
Basin and Range
5%
Heartland–26%
Prairie Gateway
9%
Eastern Uplands–5%
Fruitful Rim–24%
Note: 2010 forecast.
Mississippi Portal–4%
Source: USDA, Agricultural Resource Management Survey, NASS and ERS.
11
Agricultural Income and Finance Outlook / AIS-90 / December 2010
Economic Research Service/USDA
Government Payments Forecast at $12.4 Billion
Government payments paid directly to U.S. agricultural producers are
expected to total $12.4 billion in 2010, a 1.5-percent increase from $12.3
billion paid out in 2009. This level would be 19 percent below the 5-year
average for 2005-09. Direct payments under the Direct and Counter-cyclical
Program (DCP) and the Average Crop Revenue Election Program (ACRE)
are forecast at $4.81 billion for 2010. Direct payment rates are f xed in
legislation and are not affected by the level of program crop prices. The
4-percent decline in direct payments forecast in 2010 relative to the 5-year
average is due to producers, receiving revenue insurance payments from the
ACRE program. Those payments are expected to be $430 million in 2010.
Authorized under the 2008 Farm Act, ACRE provides revenue insurance to
participating producers in exchange for a 20-percent reduction in producers’
annual direct-payment allotments beginning with the 2009 crop year. Low
producer participation in the ACRE program—only about 1 in 11 directpayment recipients signed up for ACRE by the August 2009 deadline—has
led to this smaller than expected decrease in actual direct payments.
Counter-cyclical payments are forecast to decrease by 82 percent from $1.17
billion in 2009 to $210 million in 2010. Strong cotton prices are responsible
for this projected decrease. Only producers of upland cotton and peanuts are
expected to receive counter-cyclical payments in 2010.
Marketing loan benef ts—including loan def ciency payments, marketing
loan gains, and certif cate exchange gains—are projected at $120 million
in 2010, down 89 percent from 2009 levels. Because of the high durumwheat loan rate, durum-wheat producers are expected to receive 93 percent
of these benef ts, despite the recent rise in global wheat prices. Other wheat
classes do not qualify for marketing loan benef ts. Prior to 2010, upland
cotton producers received almost 91 percent of total marketing loan benef ts.
However, strong 2010 cotton prices are expected to remain too high for cotton
producers to qualify. Other commodities receiving marketing loan benef ts
are barley, wool, mohair, and pelts.
The Milk Income Loss Contract Program (MILC) compensates dairy
producers when domestic milk prices fall below a specif ed level. Milk prices
declined in 2009 due to the global recession, leading to $880 million in
MILC payments being made in 2009. For 2010, rebounding milk prices are
expected to reduce MILC payments to $55 million.
Forecast at $820 million in 2010, Tobacco Transition Payment Program
(TTP) payments are expected to continue a declining trend beyond 2010.
Begun in 2005, this program provides annual payments over a 10-year
period to eligible tobacco quota owners and producers of tobacco. Since the
program’s start, lump-sum payments to individuals have been made through
agreements with third parties in return for the producers’ and tobacco quota
owners’ rights to the 10-year TTP payment stream. Payments for 2010
include both Commodity Credit Corporation (CCC) payments and lump-sum
payments received by farm operators during the year (f g. 1.6).
Conservation programs operated by USDA’s Farm Service Agency (FSA) and
Natural Resources Conservation Service (NRCS) provide direct payments to
12
Agricultural Income and Finance Outlook / AIS-90 / December 2010
Economic Research Service/USDA
Figure 1.6
Government payments, 2000-10
$ billion
30
Payments–fixed1
Payments–conservation
Payments–function of crop
25
Payments–all other3
price2
20
15
10
5
0
2000
02
04
06
08
10
Note: 2010 forecast.
1Production flexibility contract payments and direct payments whereby payment rates
are fixed by legislation.
2Counter-cyclical payments, loan deficiency payments, marketing loan gains, certificate
exchange gains, and ACRE payments whereby commodity payment rates vary with crop prices.
3All other payments include disaster relief payments, tobacco transition payments, and dairy
program payments.
Source: USDA, Farm Service Agency, Natural Resources Conservation Service,
and Commodity Credit Corporation.
producers as well. Estimated conservation payments of $3.15 billion in 2010
ref ect programs being brought up toward funding levels authorized by the
2008 Farm Act.
Ad hoc and emergency-disaster program payments are forecast to be $2.82
billion in 2010, an increase of 335 percent over the $648 million paid out
in 2009. The 2008 Farm Act created a permanent fund for disaster assistance, the Agricultural Disaster Relief Trust Fund. Supplemental Revenue
Assistance Payments (SURE) from this fund and from the 2009 American
Recovery and Reinvestment Act are expected to amount to $1.93 billion in
2010. Crop Assistance Program payments are expected to amount to $420
million in 2010. Other disaster programs aimed at agricultural producers
include the Emergency Conservation Program, Livestock Forage Program,
Livestock Indemnity Program, and Noninsured Assistance Program.
Producers’ eligibility for f nancial help from these programs depends on the
extent to which their crop or livestock losses meet a particular program’s
threshold for payments, once a county is declared eligible for disaster relief.
Spatial Concentration and Program Coverage Overlap
of Direct Payments and Crop Insurance Subsidies
USDA, congressional representatives, and farm organizations have held
discussion forums with farmers around the country in 2009-10 to discuss the
upcoming 2012 Farm Bill. One proposal that has been discussed would replace
direct payments with a new system based on a “revenue assurance” program
to provide insurance against crop and livestock losses. The impetus for this
proposal is to address current Federal budget pressures and the criticism that
direct payments are made to farmers even when commodity prices are high.
Farmers’ level of support for this proposal varies by region (Good, 2010).
13
Agricultural Income and Finance Outlook / AIS-90 / December 2010
Economic Research Service/USDA
Figure 1.7 displays the spatial concentrations of direct payments from the
Direct and Counter-cyclical Program and indemnity payments from the
crop-insurance program. For a particular county, if producers received direct
payments in 2008 equal to or above $20 per cropland acre and crop insurance
indemnity payments averaged over 2007 to 2009 of less than $20 per cropland acre, then direct payments are said to be dominant. If producers received
direct payments below $20 per cropland acre and crop-insurance indemnity
payments equal to or above this amount, then crop-insurance indemnity
payments are said to be dominant. If producers received both direct payments
and crop-insurance indemnity payments at or above $20 per cropland acre,
then there is program coverage overlap.
The spatial concentration of direct payments differs from that of cropinsurance indemnity payments. Direct payments are dominant in the Corn
Belt (corn and soybeans), Mississippi Delta (cotton and rice), and the TexasLouisiana Gulf Coast (cotton and rice). Direct payment dominance is also
found in Arizona (cotton), California (cotton and rice), and parts of the
Southern Atlantic Seaboard. Crop insurance indemnity payments dominate
the wheat-growing regions in the Northern Plains and parts of the Southern
Plains, as well as North and South Carolina. Program coverage overlap
Figure 1.7
Direct payment and crop insurance indemnity payments: Spatial concentration
and program coverage overlap
Payment threshold:
$20/cropland acre or more
Direct payments dominate
Crop insurance payments dominate
Program coverage overlap
Risk Management Agency payments 3-year average, 2007-09.
Source: USDA, Economic Research Service.
14
Agricultural Income and Finance Outlook / AIS-90 / December 2010
Economic Research Service/USDA
occurs primarily in the Texas Panhandle (cotton and wheat) and across
Alabama and Georgia (cotton and peanuts).
Why ARMS and Sector Accounts Estimates of
Government Payments Differ1
1For
a more detailed comparison
of the 2007 Government payments
estimates, see appendix IV of Structure
and Finances of U.S. Farms: Family
Farm Report, 2010 Edition, http://
www.ers.usda.gov/Publications/EIB66/
EIB66.pdf.
The Economic Research Service uses two types of data on Government
payments—data from administrative records maintained by USDA’s
Farm Service Agency, Natural Resources Conservation Service, and Risk
Management Agency, as well as survey data. Administrative data serves as a
complete accounting of Government payments to program participants and
are used to generate off cial estimates of Government payments by the State
and program categories in ERS’s U.S. and State Farm Income data series
(also known as the sector accounts). Sector accounts are preferable for understanding the size and composition of Government payments made to the farm
sector, but they cannot be linked to individual farm and farm-operator characteristics. The sector accounts also include payments made to nonoperator
landlords who do not farm but receive Government payments associated with
their farmland.
The Agricultural Resource Management Survey (ARMS) collects information directly from farmers. ARMS data are useful in understanding the farm
and farm-operator characteristics of producers receiving various payments,
but like all surveys, ARMS is subject to respondent error.
For 2006 to 2009, ARMS estimates of total Government payments are
lower than the corresponding estimates from the sector accounts, on
average by about $3.3 billion, or about 75 percent of the sector estimates
of total Government payments (table 1.6). One reason for the difference is
that ARMS excludes farm program payments made to nonoperator landlords— approximately $2.3 billion per year over this period—while the
Table 1.6
Average estimates of Government payments by program for ARMS and the sector accounts, 2006-09
Total
Counter- Marketing
Other
Government
Direct
cyclical
loan
Conservation Program
payments payments payments benef ts1
Programs Payments2
Farm typology
Average of annual ARMS estimates, 2006-09
Average of annual sector accounts estimates,
2006-093
Average of annual ARMS capture rates, 2006-094
Potential variability from year to year5
Average shares by program of the sector accounts
estimates of total Government payments not
captured by ARMS, 2006-09
1
9,722.1
4,202.9
13,049.1
4,987.1
74.7
3.9
84.3
2.3
100.0
24.7
Million dollars
1,372.5
260.4
1,760.6
1,087.9
Percent
89.4
25.1
29.2
37.5
9.2
24.2
2,314.5
1,571.7
3,009.3
2,204.2
77.0
7.8
72.9
17.2
21.1
20.7
Loan def ciency payments, marketing loan gains, and net value of commodity certif cates.
2 Disaster and market loss payments, peanut quota compensation, milk income loss contract payments, other Federal program payments, and
State and local program payments.
3 From the U.S. and State Farm Income Data series–the farm sector accounts–prepared by ERS.
4 The ratio of ARMS estimates to the sector estimates, expressed as percentages.
5 Coeff cient of variation of the ARMS capture rates, expressed as percentages.
Sources: USDA, Agricultural Resource Management Survey, Phase III, NASS and ERS; USDA, ERS, U.S. and State Farm Income Data
at www.ers.usda.gov/data/farmincome/finfidmu.htm.
15
Agricultural Income and Finance Outlook / AIS-90 / December 2010
Economic Research Service/USDA
sector accounts estimates include such payments. If the ARMS estimates are
compared only to the farm share of the sector accounts estimates, ARMS
captures about 90 percent of payments in the administrative records.
For 2006 to 2009, ARMS estimates of Government payments by program
category are close to the annual estimates, with average capture rates ranging
from 73 percent for other programs to almost 90 percent for counter-cyclical
payments (see table 1.6). The sole exception is marketing loan benef ts:
ARMS estimates capture on average only 25 percent of the corresponding
sector estimates. During this period, nearly all of those payments went to
cotton producers who sold their output through cooperatives. Cotton cooperatives in many States did not separate out marketing loan gains from other
receipts when sending payments to member producers. This made it diff cult
for those cotton farmers to provide accurate information on marketing loan
benef ts in their survey responses.
ARMS capture rates for total Government payments, direct payments, and
conservation programs are very stable. In any given year, these capture
rates vary from their 4-year averages by 2 to 8 percent (see table 1.6).2
Direct payments depend on producers’ historical yields and acreages of
given commodities, not current prices. Conservation payments are largely
from the Conservation Reserve Program, paid as f xed rents through 10- or
15-year contracts.
In contrast, ARMS capture rates for counter-cyclical payments, marketing
loan benef ts, and the miscellaneous category “other program payments” are
much less stable and vary from their 4-year averages by 17 to 38 percent.
During this period, the year-to-year variation in other programs was due to
large swings in disaster relief and milk program payments. Variability in
counter-cyclical payments, and to a lesser extent, in marketing loan benef ts,
was inf uenced by signif cant changes in corn and cotton prices.
2The
coeff cient of variation
[(/)*100] measures how much an
ARMS capture rate for a particular year
potentially may vary from the capture
rate’s 4-year average. Small measures
imply that year-to-year changes in the
ARMS capture rate are likely to be
minimal. Large measures imply that
year-to-year changes in the ARMS
capture rate may be signif cant, making
the 4-year average ARMS capture rate
a much less reliable measure.
The sources of the $3.3 billion in sector estimates not accounted for by ARMS,
that is, the missing 25 percent, are spread fairly evenly across the different
programs. Direct payments and marketing loan benef ts each account on
average for about one-fourth of the ARMS measurement error, while conservation program and other program payments each account on average for about
one-f fth. The only exception is counter-cyclical payments, which account on
average for about 9 percent of the ARMS measurement error.
Moderate Rise Expected
for U.S. Farm Production Expenses
Production expenses began to rise steeply in 2003 and continued that trend
throughout 2004-08. Expenses then fell signif cantly in 2009 and are forecast
to rise moderately in 2010 (f g. 1.8). Even at the high level reached in nominal
production expenses in 2008, inf ation-adjusted expenses remained lower
than the peaks they reached in 1979 and 1980 (f g. 1.9).
Table 1.7 shows how much a number of selected expenses grew from 2002
to 2008. The increases in expenses during the period were caused primarily
by large increases in prices farmers paid for inputs. Quantity factors—such
as annual output levels or acres planted—usually changed by only a small
16
Agricultural Income and Finance Outlook / AIS-90 / December 2010
Economic Research Service/USDA
Figure 1.8
Production expenses by group, 2002-10
$ billion
300
250
200
150
100
50
0
2002
04
06
08
Farm origin
Manufactured inputs
Other operating expenses
Overhead expenses
10
Interest
Note: 2010 forecast.
Source: USDA, Economic Research Service.
Figure 1.9
Total production expenses for U.S. farms, 1970-2010
$ billion
300
Inflation-adjusted expenses (chain-type GDP deflator, 2005=100)
250
200
150
Nominal expenses
100
50
0
1970
75
80
85
90
95
2000
05
10
Note: 2010 forecast.
GDP = Gross Domestic Product.
Source: USDA, Economic Research Service.
amount and not consistently in the same direction as expenses. Even in
the long term, quantity factors do not necessarily have a great impact on
expenses. For example, the 25-percent increase in f eld crop and oilseed
production from 2003 to 2009 may have been accomplished with the same or
even smaller amount of seed as yields improved.
While the producer price index rose 27.5 percent between 2003 and 2008,
the prices paid index (PPI) from USDA’s National Agricultural Statistics
Service’s Agricultural Prices for farm sector production items, interest, taxes,
and wage rates (PITW) climbed 55 percent. The prices paid index for fertilizer rose 264 percent, the index for fuels and oils went up 207 percent, the
index for feed was up 73 percent, and the index for seeds rose 83 percent.
Real estate taxes were driven up by a 79-percent increase in land values.
Farm sector expenditures on fuels and oils followed the rise in oil prices.
From 2003 to 2008, the annual average ref ner’s acquisition cost (RAC) went
17
Agricultural Income and Finance Outlook / AIS-90 / December 2010
Economic Research Service/USDA
from $23.63 to $94.68 per barrel. Since fuels, especially natural gas, are the
major input for many fertilizers, the rise in RAC and natural gas prices were
the primary reason for the increase in fertilizer expenses. During this period,
the annual average wellhead price for natural gas went from $2.95 per 1,000
cubic feet (mcf) to $8.08 per mcf. Expenses did not rise as much as prices
for these two inputs because farmers employed steps to hold down production costs. For example, with both inputs, operators reduced quantities used.
To lessen fuel use, they reduced trips over f elds. To cut fertilizer use, they
conducted soil tests to optimize applications.
Commercial production of red meats and poultry expanded 10 percent
during this period, but the increase in feed expenses was due primarily to the
increases in grain and oilseed prices. Prices received for feed grains rose 107
percent from 2003 to 2008 and prices received for oil crops rose 131 percent.
Part of the upward push on corn prices came from the greater use of corn for
ethanol production, resulting in historically high corn prices.
Seed expenses have risen, in part, because farmers have been making greater
use of genetically modif ed seeds for corn, cotton, and soybeans, which are
relatively expensive. For example, since NASS began collecting information
on prices for biotechnology-derived corn seeds in 2001, seed expenses have
risen 67 percent.
The increase in pesticide expenses was notable because the expense had been
rising slowly through the early 2000s. In 2007-08, however, during that time,
pesticide expenses jumped by $2.7 billion (30 percent), as prices paid rose
15.5 percent and producers increased their use of these materials.
This generalized rise in prices came to an abrupt halt in 2009, when total
production expenses fell, then rebounded moderately in 2010. However,
nominal total production expenses in 2010 and 2009 still constitute the
second- and third-highest totals ever (f g. 1.9).
In 2009, production expenses dropped $12.0 billion (4.1 percent). Given the
magnitude of the growth in costs experienced from 2003 to2008, the reduction in 2009 was welcomed by farmers, especially since gross farm income
fell nearly 10 percent during the year. The reason for the fall was again
Table 1.7
Increase in selected production expenses, 2002-08
Increase
Expense item
Billion dollars
101.5
92.3
85.7
77.8
31.5
22.0
6.2
26.6
12.9
9.6
3.4
3.9
Total production expenses
Cash expenses
Operating expenses
Purchased inputs
Farm origin expenses
Feed
Seed
Manufactured inputs
Fertilizer
Fuels and oil
Pesticides
Real estate taxes
Percent
53.0
54.5
60.0
64.3
65.3
88.3
69.4
93.5
134.3
146.0
40.9
57.3
Source: USDA, Economic Research Service.
18
Agricultural Income and Finance Outlook / AIS-90 / December 2010
Economic Research Service/USDA
mostly price-related. For the f rst time since 2002, the PITW index fell, dropping almost 3 percent.
In 2010, production expenses are forecast to rise $5.6 billion (2.0 percent), a
modest movement following the many years of substantial changes. Again,
the overarching PITW index correlates with the small increase, as it is forecast to rise 2.3 percent. In contrast with 2009, only four expense categories
change more than $1 billion and three are positive. In 2009, seven categories
changed by more than $1 billion, and six expense categories showed a decline
(f g. 1.10).
Table 1.8 shows the movement in individual expenses along with their associated prices-paid indexes for 2009 and the 2010 forecast. A number of large
changes switch direction in 2010: livestock and poultry purchases, fuels and
oils, labor, and miscellaneous expenses. Fertilizer and lime expenses fall
signif cantly in both years.
Figure 1.10
Crop-related expenses, 1970-2010
$ billion
25
20
15
Fertilizer
Pesticides
10
5
0
1970
Seeds
75
80
85
90
95
2000
05
10
Note: 2010 forecast.
Source: USDA, Economic Research Service.
Table 1.8
Changes in production expenses and associated prices paid indexes, 2009 and 2010
Production expenses
Expense
2009
expenses1
Total production
Feed
Livestock and poultry
Seeds
Fertilizer and lime
Fuels and oils
Pesticides
Hired and contract labor
Miscellaneous expenses
Capital consumption
2010
Billion dollars
-12.0
5.6
-1.9
-0.3
-1.3
2.7
0.4
-0.8
-2.4
-2.0
-3.5
2.8
0.2
-0.4
-1.0
0.5
-3.1
1.9
1.4
0.5
2009
Prices paid indexes
2010
——— Percent ———
-4.1
2.0
-4.1
-0.6
-7.1
16.5
2.6
-4.9
-10.6
-10.1
-21.7
22.0
-1.7
-3.6
-3.3
1.7
-8.8
6.1
5.0
0.6
2010 forecast. na = not applicable.
1Price index for total production expenses is the production items, interest, taxes, and wages (PITW) index.
Source: USDA, Economic Research Service.
19
Agricultural Income and Finance Outlook / AIS-90 / December 2010
Economic Research Service/USDA
2009
2010
-2.8
-3.9
-7.3
15.5
-29.7
-33.6
7.6
1.9
na
2.3
-1.6
14.6
-3.9
-11.5
23.2
-2.7
1.7
na
na
na
CHAPTER 2
Farm Household Income, Net Worth,
and Well-Being
• Average farm-operator household income is forecast to be $83,194 in
2010, up 7.8 percent from the 2009 estimate.
• Equity, o r ne t w orth, ca n re f ect ec onomic w ell-being be tter t han
current i ncome. I n 20 09, t he a verage ne t w orth o f f arm-operator
households was $915,019.
• Although operator households derive most of their wealth from farm
assets, many farm households have nonfarm investments, including
f nancial investments and nonfarm real estate.
Trends in Farm Household Income
and Net Worth
Average farm household income of principal farm operators—from farm
and off-farm sources—is forecast to be $83,194 in 2010, up 7.8 percent from
2009. This contrasts with the change from 2008 to 2009, when average farm
household income declined by 3.3 percent (table 2.1). (See box, “How Does
USDA Def ne Farm Operator Households?” p. 22.)
Both off-farm and farm income sources are forecast to increase in 2010.
Average household income from farming activities is forecast to increase
58.0 percent between 2009 and 2010, from $6,866 to $10,850. This increase
follows a 2008-09 decline of 29.7 percent in income from farming activities. In 2010, household income from off-farm income sources is forecast to
increase 2.9 percent to $72,344 (see box, “How Is Farm Household Income
Def ned?” p. 23).
The average share of farm-household income from farming activities is forecast to increase from 8.9 percent in 2009 to 13.0 percent in 2010. About 60
percent of farm-operator households include either an operator and/or operator’s spouse who work off the farm. The modest increase in off-farm income
in 2009-10 ref ects economywide slow growth and weak labor markets. In
2008, the increase in off-farm income was less than 1 percent. Households
that operate the largest 10 percent of farms (with sales of $250,000 or more)
are the only U.S. farm households for which the average farm income is
greater than off-farm income in a typical year.
For 2008 to 2009, average farm-household income declined by 3.3 percent
while the median farm household had a slight increase of 1.6 percent,
to $52,235. (Median household incomes are not available for 2010 until
August 2011.) The median is the income level at which half of all households have lower incomes and half have higher incomes. As a result,
median incomes are less inf uenced by very high-income and very lowincome households than are averages; median income is generally lower
and less variable than average income.
20
Agricultural Income and Finance Outlook / AIS-90 / December 2010
Economic Research Service/USDA
Table 2.1
Farm operator household income and net worth, 2005-10
Item
Number of family farms
2005
2006
2,034,048
2,021,903
2007
2008
Number
2,143,398 2,129,869
2009
2,131,007
2010
n.a.
household1
Net earnings of the household from farming activities
Off-farm income of the household
Earned income
Off-farm wages and salaries
Off-farm business income
Unearned income
Household income of farm operators
14,227
67,091
46,034
34,876
11,158
35,283
81,317
Average dollars per farm
8,541
11,364
9,764
72,502
77,432
70,032
51,674
58,933
50,761
38,481
48,947
42,606
13,193
9,986
8,155
20,827
18,499
19,271
81,043
88,796
79,796
6,866
70,302
50,852
43,852
7,000
19,450
77,169
10,850
72,344
52,621
n.a.
n.a.
19,724
83,194
U.S. household income
63,344
66,570
67,609
68,424
67,976
n.a.
Household income of farm operators
54,550
56,274
Median dollars
54,428
51,431
52,235
n.a.
U.S. household income
46,326
48,201
50,233
50,303
49,777
n.a.
Percent
Farm income as a percent of total farm household
income
Average farm household income as a percent of
U.S. household income
Median farm household income as a percent of
U.S. household income
Net cash business income of farming operation
Farming operation depreciation expenses
Ratio of depreciation expense to net income
Total household assets, average
Farm assets
Non-farm assets
Total household debt, average
Farm debt
Non-farm debt
Household net worth, average
Farm net worth
Non-farm net worth
Household net worth, median
Household debt to asset, ratio
17.5
10.5
12.8
12.2
8.9
128.4
121.7
131.3
116.6
113.5
n.a.
117.8
116.7
108.4
102.2
104.9
n.a.
18,526
9,889
0.53
n.a.
n.a.
n.a.
Balance sheet, dollars per household
1,026,389 1,006,020
988,156 1,031,000
764,485
739,905
749,190
761,894
261,905
266,115
238,966
269,106
99,766
106,874
112,705
115,981
59,731
56,859
61,131
66,149
40,035
50,015
51,574
49,832
926,623
899,146
875,451
915,019
704,754
683,046
688,059
695,745
221,869
216,101
187,392
219,274
558,710
534,727
525,879
541,544
0.10
0.11
0.11
0.11
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
19,891
7,588
0.38
915,210
677,118
238,092
99,345
54,855
44,491
815,864
622,264
193,601
496,719
0.11
Dollars per farming operation1
15,611
21,099
21,449
7,612
8,192
10,584
0.49
0.39
0.49
Note: 2010 forecast
1See box, “How Is Farm Household Income Def ned?” p. 23.
Source: USDA, Agricultural Resource Management Survey, NASS and ERS; ERS forecast model.
In discussing the importance of farming income to households, it is useful
to consider what the indicator measures. The farm share of farm-operator
household income captures the cash returns from farming after accounting
for the depreciation of farm capital. The measure excludes in-kind income
like the rental value of the farm dwelling. More than three-quarters of principal farm operators reside in households on their farming operation. So, in
addition to the farm yielding cash earnings and capital gains from farmland
appreciation—to the extent that the household owns the farmland—households benef t by having their housing cost borne by the farm business. The
typical U.S. household spends more than 20 percent of its expenditures
(excluding principal payments on home loans) for housing. USDA’s net farm
income measure includes an estimate of the rental value of farm dwellings;
21
Agricultural Income and Finance Outlook / AIS-90 / December 2010
Economic Research Service/USDA
13.0
the imputed rental value of farm dwellings is expected to be 6 percent of
gross income of the farm sector in 2009 and accounted for more than 25
percent of net farm income. This rather stable in-kind source of farm income
helps farm families better manage their low-farm income years.
While income from farming activities excludes the noncash rental value
of the farm dwelling, it does ref ect a farm expense for depreciation. Since
farming is capital intensive, this expense can be sizable, especially for
large farms. There are several ways to calculate depreciation. The approach
ERS uses in estimating farm income is tax-based depreciation, which is
affected by changes in tax laws. An alternative to tax-based depreciation
is economic depreciation, which captures the value of capital consumed
during the accounting period. While changes in tax laws can affect
How Does USDA Define Farm Operator Households?
The farm operator household population includes everyone who shares the dwelling unit with a pr incipal operator of a family farm. This includes students away
at school who are supported by the principal operator household and, if not away
at school, would be sharing a d welling unit with the principal operator. A f arm
is def ned as any place from which $1,000 or more of agricultural products were
produced and sold, or normally would have been sold, during the year.
Since the def nition allows farms to be included even if they did not have at least
$1,000 in sales, but normally would have, USDA’s National Agricultural Statistics
Service (NASS) developed a system for determining how much a farm normally
would have sold in a given year. If a place does not have $1,000 in sales, a “point
system” assigns dollar values for acres of various crops and head of various livestock species to estimate a normal level of sales. “Point farms” are farms with less
than $1,000 in sales but have points worth at least $1,000. More than one-quarter
of farms have no sales in a typical year, and at least another 30 percent have positive sales of less than $10,000.
The current def nition of a family farm (beginning with the 2005 estimates) is
based on the Agricultural Resource Management Survey, and is a farm where the
majority of the business assets are owned by individuals related by blood, marriage, or adoption. In 2009, 97.2 percent of U.S. farms were classif ed as family
farms, and although the def nition has changed slightly over time, this share has
been stable for at l east a de cade. The farm operator is t he person who r uns the
family farm, making the day-to-day management decisions. In the case of multiple op erators, t he respondent for t he farm survey identif es who t he pr incipal
farm operator is during the data collection process.
USDA provides f nancial information for principal farm operators of family farms
and their households, referred to as farm-operator households in this publication.
For farms where there are more than one operator and the multiple operators do
not share a hous ing u nit, det ailed household d ata a nd off-farm i ncome a re not
collected for the additional operators on either the NASS Census of Agriculture
or the ARMS—household data are collected only for a single principal operator.
However, for the family farms operated by more than one operator, the majority
have t wo op erators who a re h usband a nd w ife. I n 20 09, 42 p ercent of family
farms had more t han one pr incipal operator, of which 79 percent were operated
by a h usband-wife t eam a lone. F or t he rem aining 21 p ercent o f f amily f arms
with multiple operators, household information is not available for the secondary
operators. In addition, USDA does not provide information on the f nancial position of farm-operator households who operate nonfamily farms.
22
Agricultural Income and Finance Outlook / AIS-90 / December 2010
Economic Research Service/USDA
economic depreciation by altering the incentives to buy capital goods, tax
laws likely affect the tax-based measure more because, for a given farm
size, only a certain amount of capital can be consumed in a single calendar
year. In recent years, the tax code has increased incentives for farmers to
invest in capital by increasing the amount of capital purchases that can
be expensed against taxable income. In 2005, the maximum amount was
$105,000. It then rose to $108,000 for 2006, $125,000 for 2007, and then
doubled to $250,000 for 2008 through 2010. During this short period, the
tax depreciation expense of family farm operations has increased by 30
percent (see table 2.1). Only the largest farms benef t from higher limits
How Is Farm Household Income Defined?
USDA’s d ef nition o f f arm househo ld i ncome pa rallels t hat
of the U.S. Census Bureau’s def nition of household income
for a ll U .S. househo lds i n t he C urrent P opulation S urvey
(CPS). T he C PS def nition includes all cash income of the
household, e xcept i n t he ca se o f se lf-employment i ncome
(like farming) the def nition departs from a strictly cash concept by deducting depreciation, a noncash business expense,
from the income of self-employed people. There are several
factors that affect how much of the farm business income is
earned by the household of the principal operator, including:
• Some f arms have m ultiple op erators w ho do n ot s hare
a single household. In such cases, household income is
calculated only for the principal farm operator’s household a nd i ncludes on ly t hat househo ld’s s hare o f f arm
business income.
• Also, i f a f arm is or ganized a s a C- corporation, t he
prof t that the f rm generates is retained by the business
until the business pays out those earnings in the form of
dividends. For C-corporations, farm business dividends
paid to t he pr incipal op erator househo ld a re i ncluded
in h ousehold f arm in come. (T he r emaining p rof t of
C-corporations is retained by the farm business or paid
to ot her shareholders a nd not ref ected i n t he pr incipal
farm operator household income.)
• Operators of C- a nd S-corporations may a lso pay t hemselves a wage for operating the farm and those payments
are i ncluded b oth a s a n expense to t he bus iness a nd a n
income to the farm household when they are paid. In addition, ot her farm-related ea rnings, s uch a s ren tal i ncome
from a nother f arming op eration or t he net i ncome o f
operating additional farms, are included as income in the
calculation o f ea rnings o f t he op erator househo ld f rom
farming activities.
• Earnings o f t he op erator househo ld f rom f arming
activities as d ef ned i n t he U SDA mea sure a re n ot a
complete measure of t he ret urns provided by t he farm.
For example, depreciation is an expense deducted from
income that may not actually be spent during the current
year. I ncreases i n i nventories a re e xcluded f rom t he
earnings measure, but they could be sold to r aise cash.
Nonmoney i ncome, such a s t he rental value of a f armowned dwelling, represents a farm business contribution
to household income, but is not considered cash income
for the household.
• In order to ca lculate tot al op erator househo ld i ncome,
the ea rnings o f t he op erator househo ld f rom f arming
activities are added to the income from off-farm sources.
Off-farm i ncome m ay come f rom a v ariety of sou rces,
including wages and salaries, off-farm self-employment,
interest, dividends, private pensions, Social Security, or
veterans’ benef ts.
• USDA’s mea sure o f f arm househo ld i ncome do es n ot
account f or i ncome t axes pa id b y f arm househo lds.
Numerous provisions o f F ederal i ncome t ax law a llow
taxpayers to re duce their tax liability if they undertake
certain t ax-favored a ctivities. F armers b enef t from
both g eneral t ax pro visions a vailable to a ll t axpayers
and fr om p rovisions s pecif cally des igned f or f armers.
These tax benef ts generally accrue to those with higher
incomes—generally househo lds w ith la rge f arms w ith
high farm income and households with very small farms
with high levels of off-farm income. Although very small
farms do not generate enough farm income to support a
family, most small farms benef t from farm losses for tax
purposes because these losses reduce taxes on nonfarm
income. At t he sa me t ime, m any farmers devoting f ull
time to t he f arming op eration do n ot g enerate en ough
taxable i ncome—either f arm or n onfarm—to f ully
utilize a vailable t ax b enef ts. Exa mples o f s pecial t ax
treatment f or f armers i nclude ca sh a ccounting, f arm
income averaging, depreciation, the current deductibility
of c ertain capital costs, a nd capital gains t reatment for
certain a ssets use d i n farming. T hese a nd ot her provisions reduce the farm income tax base. Since 1980, IRS
data indicate that farmers have reported negative aggregate net farm income for tax purposes. These farm losses
reduce tax liabilities on taxable household income from
nonfarm sources.
23
Agricultural Income and Finance Outlook / AIS-90 / December 2010
Economic Research Service/USDA
because the majority of family farms make capital investments below the
permitted levels. With the current $250,000 limit, the vast majority of
capital investments can be expensed in the year acquired, thereby lowering
income from farming activities for that year.
Farm Household Net Worth
Current income can be an unreliable indicator of the f nancial 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 farm returns over the long run. Equity, or net worth, which is the difference between assets and debts as of the last day of the year, ref ects this longer
term performance, since a net worth position captures the accumulation of
wealth over time. Moreover, depending on its liquidity or value as loan collateral, net worth can serve to sustain the household in years of lower income.
Average net worth of farm households increased 4.5 percent from 2008 to
2009, to $915,019, owing largely to an increase in nonfarm asset values and a
decrease in nonfarm debt. However, farm assets also increased from 2008 to
2009. With the exception of 2008, farmland values have been increasing for
more than 20 years, leaving the typical farm-operator household in a historically strong f nancial position. (USDA does not forecast farm-operator household net worth for 2010. The 2009 estimate is based on farm survey data
collected in 2010 for the end of the calendar year 2009.) In 2009, the average
farm operator household had $1.03 million in assets and $115,981 in debt.
About three-quarters of the value of assets owned by farm operator households is associated with the farm, on average, including the household’s
personal dwellings on the farm. In 2009, farm-owned operator dwellings
represented 10 percent of the average household’s assets and all other farm
assets represented 64 percent. The high share of value in dwellings shows
that many farms are small and a major portion of their value is in the farm
operator’s dwelling. Although operator households have most of their wealth
in farm assets, farm households have a broad portfolio of nonfarm investments, including f nancial investments and nonfarm real estate. The portion
of household debt associated with the farm (57 percent) is smaller than the
portion of assets associated with the farm (76 percent). There are likely a
variety of reasons for this, including the fact that the major portion of farm
assets, farmland, has been appreciating at a relatively consistent positive rate,
compared to nonfarm assets in the general economy. The major source of
nonfarm debt is from nonfarm personal dwellings. Mortgages on other real
estate and nonfarm business loans are also major sources of household debt.
Household Income Sources
and Financial Portfolios, by Farm Size
The farm-operator household population is economically diverse, in part
because of the USDA’s encompassing def nition of a farm as any operation
with the potential for at least $1,000 in sales of agricultural products in a
year. One way to think about economic diversity is to distinguish households
for whom agriculture makes important contributions to household income
from those where it does not.
24
Agricultural Income and Finance Outlook / AIS-90 / December 2010
Economic Research Service/USDA
Dividing farm households into categories based on the gross sales of their farms
and calculating the average net income from farming activities for each category
reveals that a household’s net income from farming is negative for sales categories below $50,000, and so to simplify our presentation, we divide farm households into two groups using a cutoff of $50,000 in annual farm sales. High-sales
farm households (those operating farms with $50,000 or more in gross sales)
accounted for 95 percent of the value of sales of family farms in 2009.
In 2009, the median income for both the low- and high-sales farm households
was the second lowest over the period 2005 to 2009. However, low-sales farm
households saw a 2-percent increase in median total income from 2008-09
while median income decreased by 6.7 percent for high-sales farm households. The increase for low-sales farm households came from higher off-farm
and farm income in contrast to high-sales farm households where off-farm
income increased but farm income dropped substantially owing to broad
decreases in commodity prices.
Table 2.2 reveals fundamental differences between low- and high-sales farm
households. For one, high-sales farm households tend to have higher incomes.
For 2005 to 2009, median total income for high-sales farm households ranged
from 1.2 to 1.6 times greater than that of low-sales farm households. Another
key difference is that median farm income is negative every year for lowsales farm households, though because of depreciation costs and the value of
housing, this does not necessarily mean that farming is a drain on household
f nances. It does highlight that households operating farms with modest gross
sales depend on off-farm activities for their economic well-being. High-sales
farm households, on the other hand, earn similar amounts from farm and offfarm sources.
As a farm’s gross sales increase, the operator’s total household income and
dependence on farm income also tend to increase. High-sales farm households, as a group, had a median income of $70,084 while those with farms
having sales of at least $250,000 had a median total household income of
$105,850. And while all high-sales farm households had a similar dependence on income from farm and off-farm sources, households with farms
having at least $250,000 in sales had a farm income more than double its offfarm income (i.e., a median of $70,373, compared with $27,500).
Principal operators of low-sales farms with off-farm jobs tend to work
in diverse industries. The top three industries providing employment are
construction (15 percent), retail and other services (15 percent) and agriculture, forestry, f shing or mining (14 percent). In contrast, the share of operators of high-sales farms who also work at off-farm jobs were far more likely
to have an off-farm job in agriculture, forestry, f shing, or mining (28 percent
did in 2009) than any other industry category. For both low- and high-sales
households, the spouses of operators are most likely to work in the retail,
education, or health care sectors, with each of the sectors responsible for a
similar share of the jobs (f g. 2.1).
The median net worth of high-sales farm households is $1,075,460, almost
2.4 times the net worth of low-sales farm households, $452,650. (Average
2009 net worth of low- and high-sales farm households was $649,606 and
$1.61 million, respectively).
25
Agricultural Income and Finance Outlook / AIS-90 / December 2010
Economic Research Service/USDA
Table 2.2
Farm operator household income by gross farm sales, 2005-09
2005
Gross sales less than $50,000
Farm
-2,291
Median1
Off-farm
55,000
Total Income
50,871
Farm
Off-farm
Total Income
Mean
-2,302
72,408
70,106
2006
2007
Dollars
2008
2009
-3,357
58,250
54,835
-3,350
55,000
50,838
-4,633
54,500
47,936
-4,110
55,000
48,915
-4,002
76,656
72,654
-6,349
81,697
75,348
-6,849
74,218
67,368
-7,607
74,652
67,045
Gross sales greater than or equal to $50,000
Median1
Farm
Off-farm
Total Income
32,736
29,250
73,507
23,673
33,000
67,089
29,596
34,000
76,528
28,551
32,750
74,781
23,729
34,002
70,084
Mean
Farm
Off-farm
Total Income
68,059
49,774
117,832
50,016
58,766
108,782
71,127
63,042
134,169
63,850
56,407
120,257
53,312
56,343
109,655
Gross sales greater than or equal to $50,000 and less than $250,000
Median1
Farm
Off-farm
Total Income
23,700
32,500
63,667
17,378
35,001
57,167
18,671
38,500
62,500
13,752
36,250
61,705
12,169
39,422
57,769
Mean
Farm
Off-farm
Total Income
23,690
53,910
77,600
16,167
58,213
74,381
16,543
75,833
92,376
11,670
62,098
73,768
9,887
60,837
70,724
Gross sales greater than or equal to $250,000
Median1
Farm
Off-farm
Total Income
91,433
22,500
119,725
60,281
27,750
100,552
74,851
27,500
115,600
77,071
28,458
115,723
70,373
27,500
105,850
Mean
Farm
Off-farm
Total Income
160,577
41,148
201,726
116,656
59,854
176,509
147,821
45,071
192,892
136,154
48,521
184,675
114,609
49,999
164,609
1The
sum of median farm and off-farm income will generally not equal the median total income.
Source: USDA, Agricultural Resource Management Survey, NASS and ERS.
Figure 2.1
Distribution of asset holdings, 2009
Low-sales farm households
(less than $50,000 in gross sales)
5%
5% 3%
Farm assets, excluding dwellings
High-sales farm households
(at least $50,000 in gross sales)
Farm dwellings
6%
6%
Financial assets in nonretirement accounts
IRA, Keogh, 401k, and other retirement accounts
8%
51%
7%
Personal dwellings, not owned by operation
Other nonfarm real estate
15%
Businesses not part of this farm
Vehicles and other assets
Source: USDA, Agricultural Resource Management Survey, NASS and ERS.
26
Agricultural Income and Finance Outlook / AIS-90 / December 2010
Economic Research Service/USDA
79%
3%
3%
3%
3%
2%
1%
The distribution of a household’s wealth across asset types ref ects livelihood
orientation and also the extent that changes in particular asset markets would
affect a household’s net worth. For low-sales farm households, about half of
household assets consist of farm assets, not including dwellings. Dwellings
and f nancial assets (retirement and nonretirement) compose another 30
percent. As expected given the greater importance of farm income, households associated with larger farms have a greater share of their assets (79
percent) in farm assets. Even though high-sales farm households have more
than double the net worth of low-sales farm households, those with low sales
have, on average, about $7,000 more in f nancial assets like stocks.
Farm Households Compared
With the U.S. Population
For 2005 to 2009, the average and median household income for low-sales farm
households were close to those for U.S. households. For 2009, in particular,
low-sales farm households had slightly lower incomes than U.S. households. In
contrast, high farm-sales households had signif cantly higher incomes than both
U.S. households and low-sales farm households, regardless of the year.
Figure 2.2 shows the percent of low- and high-sales farm households in one
of four wealth-income categories def ned by median U.S. household income
and net worth. A household in the low income-low wealth group, for example,
would have an income and net worth less than the median values for U.S.
households. Only a small share of farm households falls into either of the
low-wealth categories, regardless of farm sales. High-sales farm households
are largely concentrated in the high income-high wealth category. In contrast,
low-sales farm households are equally likely to be in either the low incomehigh wealth or the high income-high wealth categories. The former group of
low-sales farm households have lower off-farm incomes, compared with the
latter group with more signif cant off-farm incomes.
Figure 2.2
The income and wealth of low- and high-sales farm households, 2009
Percent households
80
Low sales
High sales
High wealth
Low wealth
60
40
20
0
Low wealth
Low income
High wealth
High income
Note: The bars associated with the high-sales farm households represent percents based on
all high-sales farms, not all farms in general.
Source: USDA, Agricultural Resource Management Survey, NASS and ERS.
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Agricultural Income and Finance Outlook / AIS-90 / December 2010
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CHAPTER 3
Earnings Differ Among Farm Businesses
and Enterprises
• U.S. agriculture is a d iverse sector encompassing a co mplex m ix of
business enterprises.
• Income forecasts highlight the diversity of f nancial outcomes and are
based on applying sector level forecasts, receipts, and expenses to the
latest Agricultural Resource Management Survey (ARMS) data.
• Average net cash income for farm businesses is expected to increase
throughout much of the country in 2010. The expected strong recovery
in dairy, hog, and cattle receipts will result in much higher average net
cash incomes for farm businesses in the Northern Crescent, Basin and
Range, and Prairie Gateway regions.
Agriculture is a diverse sector represented by a complex mix of business
enterprises. This section focuses on the 850,000 farm businesses that are
responsible for the majority of economic activity in the sector (see box,
“Def ning Farm Businesses,’ p. 29, for more detail). Results reported here are
designed to highlight the diversity of f nancial outcomes. We apply sectorlevel forecasts of receipts and expenses to the latest ARMS data to forecast
net cash farm income for various types of farms. Estimates of farm-level
income reported by USDA from ARMS have been developed to ref ect both
the contributions of factor providers, such as creditors and landlords, and the
use of business arrangements such as contracts. The net cash income reported
for farms is the income available to share among owners and operators who
participate in the farm’s f nancing, production, and marketing outcomes. Cash
f ow projections can be summarized across various groups of farms, based on
regional location, commodity specialization, or size. The model is static and
therefore does not account for changes in crop rotation, weather, and other
local production impacts that occurred after the base year.
The livestock sector experienced the brunt of the f nancial downturn in
2009, with dairy farm businesses sustaining the most severe losses (table
3.1). During 2009, prices for livestock and dairy products declined much
faster than for feed costs, which strained net earnings for livestock and dairy
producers. The strengthening U.S. economy and lower levels of hog products
in the marketplace have helped support hog prices in 2010. Milk prices have
recovered from recent lows. More important, feed prices have fallen from
the peaks of 2008 and export demand for livestock products looks stronger
for 2010. Ref ecting this potential for an improved economic environment,
average net cash income of hog farm businesses is forecast to rebound to
almost $276,100. Dairy farm businesses are forecast to have average incomes
of $214,000 which, like hogs, would represent an increase from average
incomes earned during 2007 and could be the strongest percentage rebound
from 2009 of any major commodity group. With inventories of breeding
cattle at their lowest levels in decades, average net cash income of cattle farm
businesses is forecast to increase 37 percent and would be at the highest
level since 2007. Poultry farm businesses are expected to have the lowest
increase in net cash income (17 percent). Poultry and turkey farm business
28
Agricultural Income and Finance Outlook / AIS-90 / December 2010
Economic Research Service/USDA
are expected to show smaller percentage price increases than other major
livestock groups. In addition, poultry farm businesses are projected to have
the largest increase in cash expenses due to their greater intensity of energyrelated input use.
In contrast to the outlook for a strong ($20 billion) recovery in livestock
receipts, crop cash receipts are forecast to increase by half as much—$9.4
billion in 2010. Uncertainty regarding corn yields and production, continued
demand for ethanol, and strong exports have contributed to signif cant price
increases for corn, many feed grains, and soybeans in the second half of
2010. Crop farm businesses’ bottom lines also will be enhanced by continued
reductions in input costs. Fertilizer expenses are forecast to decline by 10
percent in 2010, after declining by almost 11 percent in 2009. Farm businesses that employ debt f nancing will benef t from relatively low interest
rates, with interest expense forecast to be 1.4 percent lower in 2010. Higher
expenses for fuel, labor, and taxes will likely offset some of the potential for
lower total cash expenses in 2010. The projected increase in average income
for corn, soybean, and wheat farm businesses ranges from 11-14 percent in
2010. Average incomes of cotton and rice farm businesses are forecast to
increase by 33 percent on the strength of cotton price increases combined
with modest increases in expenses.
Average net cash income for farm businesses is expected to increase
throughout much of the country in 2010. The expected strong recovery in
dairy, hog, and cattle receipts will result in much higher average net cash
incomes for farm businesses in the Northern Crescent, Basin and Range, and
Prairie Gateway regions. In the Northern Crescent, where dairy is a prominent commodity, average net cash income for farm businesses is forecast to
increase by over 58 percent. Incomes are expected to be almost 50 percent
higher in 2010 for farm businesses in the Basin and Range region, where
cattle are an important commodity. This region had the largest percentage
decline in average net cash income in 2009. Areas of the country where grain
and oilseed production are prominent—such as the Heartland, Northern
Defining Farm Businesses
The off cial USDA farm def nition (an operation with $1,000 of gross agricultural
sales or t he p otential to g enerate such sa les) encompasses a w idely d iverse 2 .1
million operations. Farms vary in their level of business activity, resource allocation, goals, and a host of other attributes. ERS developed a typology of farms to
categorize farms into more s imilar groups based on g ross sales, major occupation o f t he f arm op erator, a nd tot al househo ld ea rnings ( for more i nformation
see Structure and Finances of U.S. Farms: Family Farm Report, 2007 Edition,
www.ers.usda.gov/Publications/EIB24/). In order to concentrate analysis of business performance on those farms with signif cant labor allocation to farming and
household dep endence on bus iness i ncome, se veral o f t he f arm t ypology c lassif cations are excluded. These include limited-resource farms, retirement farms,
and residential/lifestyle farms. A majority of these farms have negative business
income a nd dep end on o ff-farm sou rces o f i ncome to s upport t heir househo ld
(see information in household income section). Farm businesses, for purposes of
performance analysis in this chapter, include the more than 800,000 remaining
family and nonfamily farms who indicated that farming was the primary activity
of the operator.
29
Agricultural Income and Finance Outlook / AIS-90 / December 2010
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Table 3.1
Change in net cash income by type of farm operation, 2010
Commodity
specialization
Program crops
Percent
change in
net cash
income
Key determinants of change
Mixed grain
17.0
Crop receipts 5.2% above 2009. Total cash expenses unchanged. Fuel
up 22%, while fertilizer down 10% and seed down 5%.
Wheat
10.7
Crop receipts up 4.7%. Cash expenses forecast to increase by 0.5%.
Fuel and utilities had the largest increases. Seed and fertilizer expenses
are forecast to decline.
Corn
14.3
Crop receipts are forecast to increase by 4.8%. Cash expenses forecast
to remain similar to 2009. Fuel and utilities were the expense items with
the largest increases.
Soybeans and peanuts
13.0
Crop receipts up 4.9%. Cash expenses forecast to decline by 0.3%.
Seed and fertilizer, which together represent 42% of cash expenses
decline by 5% and 8%, respectively.
Cotton and rice
32.5
Crop receipts up 15.5%. Government payments project to drop 14%.
Cash expenses similar to 2009.
Nonprogram crops
Other f eld crops
18.7
Specialty crops
7.5
Crop receipts forecast up by 7.4%. Cash expenses projected to increase
by 1.7%. Fuel and utilities had the largest increases.
Crop receipts up 3.8%. Cash expenses forecast to increase by 1.4%.
Labor, which represents 40% of cash expenses, is projected up by 1.7%.
Livestock
Beef cattle
36.7
Hogs
61.8
Poultry
16.7
Livestock receipts up 11.9%. Cash expenses 6% higher. Fuel and
utilities had the largest increasesfrom 2009. Feed costs similar to 2009.
Livestock receipts up 22.3%. Cash expenses projected up by 2.6%. Feed
similar to 2009 and interest expense down 1.4% from 2009.
Livestock receipts up 16.7%. Cash expenses 4.2% higher. Other farm
related income 3.7% lower than 2009.
Dairy
205.0
Livestock receipts up 26.3%. Government payments up 38%. Cash
expenses 1.3% higher. Feed which represents 42 percent of cash
expenses is expected to decline by 0.6% from 2009.
Other livestock
-61.9
Livestock receipts up 12.3%. Cash expenses 3.9% higher.
Note: 2010 forecast.
Source: USDA, Economic Research Service, farm-level forecast model.
Great Plains, and Mississippi Portal—are expected to have the smallest
increases in average net cash farm business income ranging from 21-25
percent.
One way to gauge the relative strength of the income recovery across regions
is to compare the 2010 forecast with the 2007-08 average. In all but four
regions, average farm business income is projected to be higher than the
2007-08 average (f g. 3.1). Even among regions with improved earnings, there
is disparity in the strength of the recovery. The Mississippi Portal has the
highest average farm business income relative to 2007-08 (49 percent higher
in 2010) compared with incomes higher than the 2007-08 average by 26
percent in the Northern Crescent, 18 percent in the Heartland, and 14 percent
in the Northern Great Plains. Average incomes are projected to be 24 percent
below the 2007-08 average in the Basin and Range region.
30
Agricultural Income and Finance Outlook / AIS-90 / December 2010
Economic Research Service/USDA
Figure 3.1
Change in average net cash income by resource region, 2010
2010 net cash income forecast
compared with 2007-08 average1
20% or greater reduction
11% to 20% reduction
10% or less reduction
1% to 10% increase
11% to 20% increase
More than 20% increase
Note: 2010 forecast. See ERS Resource Regions map, p.11.
1The farm level forecasts are derived from partial budget modeling on the 2009 ARMS using parameters from the sector forecasts.
The model is static and therefore does not account for changes in crop rotation, weather, and other local production impacts that occurred
after the base year.
Source: USDA, Agricultural Resource Management Survey, NASS and ERS.
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Agricultural Income and Finance Outlook / AIS-90 / December 2010
Economic Research Service/USDA
CHAPTER 4
Farm Business Balance Sheet
and Financial Performance
• Increases in farm asset and equity values, together with decreases in
farm sector debt affect the overall solvency of the sector. Declining
debt-to-asset and debt-to-equity ratios improve the ability of farmers
and other investors to f nance purchases of farmland and other assets.
• Factors that have contributed to the rise in farm-asset values include
farm investors’ higher expected future net returns, rising cash f ow,
and generally favorable credit conditions for credit-worthy borrowers.
• Unused debt repayment capacity is expected to increase in 2010 due
to a projected decrease in farm debt and increase in farm income.
Asset values and outstanding farm debt are fundamentally driven by expected
returns on investments in farmland and other farm capital, and by interest
rates. These factors vary across the country, ref ecting differences in expected
net returns on the mix of crops and livestock produced locally, in credit
market conditions, and in opportunities for off-farm employment and investments. Forecasts of rising net returns on farm investments are primarily due
to rising cash receipts for crops and livestock, and to low interest rates. As a
result, the value of farm business sector assets is expected to rise in 2010.
Farm business sector assets and equity (assets minus debt) values are forecast
to rise modestly in 2010, while farm debt is forecast to decline from 2009 levels
(table 4.1). Farm sector asset values are expected to rise by about $63 billion
to $2.12 trillion in 2010 (a 3.1-percent increase). The values of real estate, crop
inventories, livestock and poultry inventories, purchased inputs, machinery and
equipment, and f nancial assets are all expected to rise modestly in 2010.
Interest rates in 2010 have remained low and stable, and credit has generally
remained available through major agricultural lenders. Nonetheless, some
farm businesses could be facing tightened credit requirements in 2010 as a
consequence of increased loan collateral requirements and/or decreased loan
repayment time periods. While debt capital is likely to be available to highly
qualif ed borrowers at relatively low costs, less qualif ed borrowers could be
facing higher interest rates.
Farm sector debt is expected to fall from about $245 billion in 2009 to about
$240 billion in 2010 (f g. 4.1). The decline in real-estate debt is expected to
be about $2 billion (-1.7 percent) while the decline in nonreal-estate debt is
forecast to be about $3 billion (-2.6 percent).
Farm business equity is expected to rise from $1.8 trillion in 2009 to $1.9 trillion in 2010 (a 3.8-percent increase), due to an expected 3.1-percent increase
in the value of farm assets and a 2.1-percent decline in farm business debt
(f g. 4.2). The farm business sector’s debt-to-asset ratio is expected to decline
to 11.3 percent and debt-to-equity is expected to decline to 12.8 percent in
2010, indicating an overall increase in the farm sector’s solvency (f g. 4.3).
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Agricultural Income and Finance Outlook / AIS-90 / December 2010
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Table 4.1
Balance sheet of the U.S. farming sector, 2004-2010
Financial measures
2004
2005
2006
2007
2008
8/4/2010
2009
11/16/2010
2010
Farm assets
1,588,033
1,779,376
1,923,596
$ million
2,055,276
2,023,302
2,057,140
2,120,117
Real estate
Livestock and poultry
+/- change in value of inv. adjust.
Machinery and motor vehicles1
Crops stored2
+/- change in value of inv. adjust.
Purchased inputs
Financial assets
1,305,188
79,420
1,486,960
81,097
1,625,835
80,747
1,751,386
80,649
1,702,961
80,607
1,727,173
79,785
1,781,925
81,372
107,789
24,435
113,071
24,291
114,200
22,699
114,706
22,703
123,380
27,610
125,971
32,887
129,121
35,595
5,701
65,500
6,491
67,465
6,460
73,656
7,019
78,812
7,167
81,577
7,217
84,106
7,243
84,862
181,917
196,377
203,581
214,063
242,677
245,360
240,265
Real estate
Farm Credit System
Farm Service Agency
Commercial banks
Life insurance companies
Individuals and others
Storage facility loans
95,653
37,078
2,395
34,630
10,726
10,598
226
104,768
41,173
2,453
37,904
11,307
11,682
250
108,048
43,448
2,374
40,149
12,001
9,790
285
112,682
46,793
2,281
41,884
12,750
8,657
316
133,582
57,124
2,313
49,705
14,736
9,552
151
134,514
58,423
2,343
50,338
14,246
8,695
469
132,261
Nonreal estate
Farm Credit System
Farm Service Agency
Commercial banks
Individuals and others
86,265
22,040
3,244
45,849
15,132
91,609
24,279
3,008
48,405
15,917
95,533
27,811
2,736
51,253
13,733
101,382
31,622
2,808
54,129
12,823
109,096
37,290
2,652
57,313
11,841
110,846
39,883
2,823
57,027
11,113
108,004
1,406,115
1,582,999
1,720,015
1,841,212
1,780,625
1,811,779
1,879,852
12.9
11.5
12.4
11.0
11.8
10.6
11.6
10.4
13.6
12.0
13.5
11.9
12.8
11.3
Total farm debt3
Farm equity
Selected ratios:
Debt-to-equity
Debt-to-asset
Note: 2010 forecast and 2009 preliminary. Numbers may not add due to rounding. Balance sheet is as of December 31.
1Includes only farm share of value for trucks and automobiles.
2Non-CCC crops held on farms plus value above loan rates for crops held under CCC.
3Includes CCC storage and drying facilities loans but excludes debt on operator dwellings and for nonfarm purposes.
The current forecast and historic information can always be found at http://www.ers.usda.gov/data/farmincome/finfidmu.htm
Information contacts: For assets -- Ken Erickson, (202) 694-5565, e-mail: [email protected] and
for debt -- Bob Williams, (202) 694-5053, e-mail: [email protected]
Unused Debt Repayment Capacity Expected
To Increase in 2010
A projected decrease in farm debt in 2010, combined with an increase in
farm income, should increase the sector’s maximum feasible farm debt and
unused debt repayment capacity in 2010 (f g. 4.4). Debt repayment capacity
utilization (DRCU) is the ratio of actual farm debt outstanding relative to the
maximum feasible farm debt in any given year. As farmers do not necessarily
use all their debt repayment capacity, the DRCU is a measure of the extra
cushion the farm sector has to repay farm debt over time solely through the
production and sale of farm products and services (see box, “Components of
Sectorwide DRCU Calculations,” p. 35). A DRCU estimate exceeding 100
percent indicates that debt payments must be made by drawing on additional
cash sources, such as taking on additional debt, earning off-farm income,
drawing down household assets, or selling farm business assets. By the end of
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Agricultural Income and Finance Outlook / AIS-90 / December 2010
Economic Research Service/USDA
2010, farm sector DRCU is expected to fall to about 45 percent, down from
59 percent in 2009 (f g. 4.5).
Net Cash Flow
The net cash f ow measure helps farm f nancial analysts to better understand
the process of farm capital formation. It expands on the net cash income
concept to account for internal and external sources of funds, and thus net
cash f ow provides a broader indication of the resources available to farm
businesses to invest in the sector, and to meet current debt obligations (see
box, “Net Cash Flow (After Interest Expenses),” p. 36).
Net cash f ow after interest expenses fell by nearly $45 billion in 2009 but is
expected to rise by nearly $11 billion in 2010. The debt-to-net cash f ow ratio
is inversely related to the farm business sector’s ability to f nance farm investments in land and other farm capital—a lower ratio shows a higher ability to do
so. This ratio is expected to improve from 5.2 in 2009 to 4.1 in 2010 (f g. 4.6).
Figure 4.1
U.S. farm sector debt, 1984-2010
$ billion
Real estate
250
Nonreal estate
200
150
100
50
0
1984 86
88
90
92
94
96
98 2000 02
04
06
08
10
Note: 2010 forecast.
Source: USDA, Economic Research Service.
Figure 4.2
Farm sector equity (net worth), 1980-2010
$ trillion
2.0
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0
1980 82
84
86
88
90
92
94
96
98 2000 02
04
06
08
10
Note: 2010 forecast.
Source: USDA, Economic Research Service.
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Agricultural Income and Finance Outlook / AIS-90 / December 2010
Economic Research Service/USDA
Components of Sectorwide DRCU Calculations
Income for debt coverage = Net farm income + interest on capital debt
Debt repayment = Principal and interest on capital debt + capital lease payments
Total debt coverage ratio = Income for debt coverage / debt repayment
Debt coverage margin = Income for debt coverage – debt payment
Minimum debt coverage ratio = lender requirement; based on a coverage ratio of
1.25, which requires that no more than 80 percent of the loan applicant’s income
be used for repayment of principal and interest on loans.
Maximum loan payment = Income for debt coverage / minimum debt coverage ratio
Debt repayment capacity = Ma ximum l oan pa yment x ( 1-(1+r) -n)/r, w here
(1-(1+r) -n /r = present value of an annuity of $1, at r percent for n periods.
Debt repayment capacity utilization = Debt / debt repayment capacity.
Figure 4.3
U.S. farm sector debt-to-asset and debt-to-equity ratios, 1986-2010
Percent
30
25
20
Debt to equity
15
Debt to assets
10
5
0
1986
88
90
92
94
96
98
2000
02
04
06
08
10
Note: 2010 forecast.
Source: USDA, Economic Research Service.
Figure 4.4
Farm sector debt and repayment capacity, 1971-2010
$ billion
500
Maximum feasible debt
400
300
Unused repayment capacity
200
100
0
1971 74
Farm business debt
77
80
83
86
89
92
95
98
2001 04
07
10
Note: 2010 forecast.
Source: USDA, Economic Research Service.
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Agricultural Income and Finance Outlook / AIS-90 / December 2010
Economic Research Service/USDA
Net Cash Flow (After Interest Expenses)
Net cash flow (after interest expenses) is def ned as:
= net cash income
+ change in loans outstanding
+ net rent to nonoperator landlords (excluding capital consumption)
+ net change in farmers’ currency and demand deposits
- capital expenditures (excluding operator and other dwellings)
- interest expenses (excluding operator and other dwellings)
Figure 4.5
Sector debt repayment capacity utilization (DRCU), 1986-2010
Percent
70
60
50
40
30
20
10
0
1986
88
90
92
94
96
98
2000
02
04
06
08
10
Note: 2010 forecast. DRCU for farm operators = actual debt / debt that could be repaid
from current income.
Source: USDA, Economic Research Service.
Profitability of Farm Sector Investments Rising
Total return to farm assets includes both current income (returns to farm
assets realized in the current year) and capital gains accruing to farm assets.
Capital gains contributed the major share of total returns from 2003 through
2007. However, as the appreciation in farm asset values (principally farmland) declined from 2004 to 2009, returns from current income (returns
actually realized each year) have grown as a share of total returns to farm
business assets.
Returns on farm assets and equity are indicators of the prof tability of farm
sector investments. Total returns on farm business assets (from current
income plus capital gains) are estimated at $60.3 billion in 2009 (with $26.4
billion from current income and $33.9 billion from capital gains) (f g. 4.7).
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Agricultural Income and Finance Outlook / AIS-90 / December 2010
Economic Research Service/USDA
Figure 4.6
Farm business debt to net cash flow, 1960-2010
Ratio
20
18
16
14
12
10
8
6
4
2
0
1960
Debt-to-net cash flow after interest
65
70
75
80
85
90
95
2000
05
10
Note: 2010 forecast.
Source: USDA, Economic Research Service.
Figure 4.7
Total returns to U.S. farm business assets, 1960-2009
$ billion
300
250
Total returns: current income plus capital gains
200
150
Returns to farm assets from current income
100
50
0
-50
-100
-150
1960
Returns to farm assets from capital gains
65
70
75
80
85
90
95
2000
05
Source: USDA, Economic Research Service.
Farms’ Net income and Solvency Position
Five percent of farms were classif ed as being in a vulnerable position on
December 31, 2009, having both negative net cash income and a debtto-asset ratio over 0.40 (see f g. 4.8 and box, “Def nition of Solvency
Measures,” p. 38). More farms (27 percent) were classif ed as being in a
marginal-income position as a result of having negative net cash incomes,
but a debt-to-asset ratio of 0.4 or less.
The share of all U.S. farms classif ed as vulnerable has dropped since 1986
(the year when combined net farm income and balance sheet statements were
f rst available for farm businesses), when nearly 12 percent of farms were in
this f nancial position. The share of farms classif ed as being in a vulnerable
position had a fairly sizable drop between 1986, when the 1980s farm crisis
was ongoing, and the late 1980s and early 1990s, as debt was pared relative
to asset values and incomes improved. More recently, the share of farms classif ed as vulnerable has dropped in this decade to the lowest levels that ERS
37
Agricultural Income and Finance Outlook / AIS-90 / December 2010
Economic Research Service/USDA
has recorded, as a result of expanding income levels and shrinking debt in
relation to asset values.
At the other extreme, about 62 percent of farms were in a favorable f nancial
position entering 2010. These farms had both positive income and relatively
low farm debt. For comparative purposes, 48 percent of farms were classif ed
as favorable in 1986. In addition to a smaller share of farms being classif ed
as vulnerable, another striking change has occurred in the share of farms
with a high debt burden (over 40 percent of asset values) and positive net
income (marginal solvency). This measure is down from 10 percent of farms
in the mid-1980s to around 7 percent in 2009. This change in classif cation
ref ects both the larger share of farms that report no yearend debt and the
farms that do report debt use being in a less leveraged position. The substantial rise in asset values, particularly land, over the past two decades has
contributed to the reduction in f nancial leverage borne by farms.
Figure 4.8
Share of farm businesses by overall financial performance position,
1996-2009
Percent
Favorable
80
Marginal income
Marginal solvency
Vulnerable
60
40
20
0
1996
98
2000
02
04
06
08
Source: USDA, Agricultural Resource Management Survey, NASS and ERS.
Definition of Solvency Measures
Favorable: Net Farm Income > 0, Debt to Asset Ratio 40%
Marginal Income: Net Farm Income < 0, Debt to Asset Ratio 40%
Marginal Solvency: Net Farm Income > 0, Debt to Asset Ratio > 40%
Vulnerable: Net Farm Income < 0, Debt to Asset Ratio > 40%
38
Agricultural Income and Finance Outlook / AIS-90 / December 2010
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SPECIAL ARTICLE :
Low Levels of At-Risk
Farm Business Collateral
Security and Debt
• The n umber o f “ at r isk” ag ricultural l oans he ld b y f arm b usinesses
increased slightly from 2008 to 2009, while remaining at modest levels.
• Simulations s uggest t hat a s udden de valuation o f f arm a ssets o r a
sudden increase in interest rates would have little effect on agricultural collateral security and the riskiness of farm debt in the short run.
Despite the recent global recession and continuing U.S. economywide credit
problems, the f nancial health of the farm sector has been excellent in recent
years. The farm sector’s f nancial stability has been largely unaffected by the
global f nancial crisis despite unstable input prices and variable output prices.
However, given the widespread impacts of the global economic crisis, there
have been concerns raised about the debt repayment ability of farmers and
the future stability of asset values—especially for livestock farmers, whose
net farm incomes declined in 2009 due to higher feed costs and weakened
domestic and international demand.
Questions about the impacts of changes in asset values and interest rates must
take into account how they relate to farm business stress and debt at risk (see
box, “Estimating Debt at Risk” for a description of how we measure such
debt). A decline in farm asset values could raise concerns about f nancial stress
since such assets represent the collateral security backing farm business loans.
A rise in interest rates could raise concerns about the ability of borrowers to
repay existing debt. Financial stress and debt repayment are intertwined since
a common lender reaction to increasing f nancial stress or loan delinquencies
is to tighten credit standards, including requiring greater collateral reserves.
Thus far, while growing asset values (see chapter 4) have increased the value
of collateral backing farm business loans, farm business debt at risk has been
slowly rising since 2007. In this Special Article, we examine recent changes
in various measures of troubled agricultural debt, the types of farm businesses
currently experiencing f nancial stress, and the potential impact on debt repayment problems should farm businesses suddenly face decreases in the market
value of farm assets or increases in interest rates.
Before simulating the impacts of potential declines in asset values or increases
in interest rates, we examine recent trends in debt at risk. Three sources of
data are used: data from the Farm Credit System (FCS) and commercial banks
(which together account for more than 85 percent of farm debt), and data from
the Agricultural Resource Management Survey (ARMS). Data for agricultural
loans that are not paying their stated interest rate or are more than 90 days
past due from the FCS, and delinquent and nonperforming loans from insured
commercial banks show a 89-percent increase ($3.1 billion) in potential loan
defaults in 2009 compared to 2008 (f g. 1). Since 2007, troubled farm debt
reported by these two groups of lenders has more than triple, increasing by $4.6
billion. Nevertheless, the share of farm debt outstanding that is experiencing
39
Agricultural Income and Finance Outlook / AIS-90 / December 2010
Economic Research Service/USDA
repayment problems remains relatively low (less than 4 percent), and farm business debt at risk estimates developed with ARMS data are forecast to decline
slightly in 2010. If we compare the current situation in farming with that in the
housing market, delinquency rates on housing loans are more than double the
rates on farm loans.
While the debt-at-risk estimates developed with ARMS data generally track
movements in the amount of troubled agricultural debt reported by lending
institutions, there are a number of reasons why these two measures differ.
The results from ARMS ref ect only farm business earnings. When business
earnings are insuff cient to service debt, farm operators often rely on income
from other sources (such as off-farm jobs and businesses) to service their debt
(see chapter 2 for a discussion of off-farm sources of income available to farm
Figure 1
Agricultural loans currently at risk are high relative to 2007
$ billion
14
Debt at risk
(ARMS estimate)
12
Deliquent + nonperforming
(insured commercial banks)
Nonperforming
(FCS)
10
8
6
4
2
0
2000
01
02
03
04
05
06
07
08
09
Note: FCS = Farm Credit System; ARMS = Agricultural Resource Management Survey.
Source: Farm Credit System (FCS) data, Federal Reserve data, and USDA, Agricultural
Resource Management Survey data.
Estimating Debt at Risk
Using i nformation rep orted b y f arm bus inesses i n t he A gricultural R esource
Management Survey (ARMS), we estimate the amount of “debt at risk” of delinquency or delayed/negotiated repayment. Farm businesses with negative equity
(technically insolvent) pose the greatest risk of debt repayment diff culties, particularly when the farm does not have positive cash f ow from annual operations.
So, the f rst component of our “debt at risk” estimate is the amount of debt owed
by technically insolvent farms with negative farm business income. We use t he
debt repayment capacity utilization (DRCU) measure described in chapter 4 to
determine additional current debt in danger of not being repaid in a timely manner. The DRCU measures the amount of debt an operator can borrow based on
existing net income and interest rates plus current existing principal and interest
payments. In most cases, lenders become increasingly reluctant to lend to a farm
operation when the minimum principal and interest payments on a ll the operation’s debt exceed 80 percent of its income. Therefore, the second component of
our debt at r isk measure is t he amount of current debt o bligations (interest and
principal d ue i n t he c urrent ca lendar y ear) f or f arm bus inesses w ith a D RCU
above 120 percent.
40
Agricultural Income and Finance Outlook / AIS-90 / December 2010
Economic Research Service/USDA
households). Farm operators can also continue servicing their debt by liquidating current assets (or inventories). In addition, some of the discrepancy
between the ARMS estimate of debt at risk and what is reported by commercial banks and the FCS may be attributed to other lenders (such as equipment
dealers and input suppliers). There could also be a lag between when banks
report delinquent loans and when we measure that potential based on annual
survey data.
Financial stress is not evenly distributed among farm businesses. According
to 2009 ARMS data, livestock farms held 55 percent of total farm business
debt at risk. This included large shares held by dairy farms (24 percent)
and beef cattle farms (18 percent). Dairy and beef farms (including feedlot
activities) tend to have higher capital requirements than other types of farms.
Among crop farms, specialty crop farms accounted for 17 percent and corn
farms followed with 14 percent of total debt at risk (fig. 2).
Fixed vs. Variable Rate Loans
In the current economic environment, the prospects for a significant increase
in interest rates at some point in the near future are rising, if for no other
reason than they are currently at historically low levels. The farm enterprises
under greatest short-term risk are those holding variable rate loans.
Figure 3 shows the number (and percent) of farm businesses that reported
variable interest rate loans for 2009. Eighteen percent of farm businesses had
a variable rate loan during the survey year compared with 59 percent of farms
that had no loans. An additional 29 percent of farm businesses had fixed rate
loans. Some farm businesses can have fixed and variable rate loans or several
loans of the same type.
The average interest rate for all loan types was 5.6 percent in 2009. The
lowest average interest rate was 4.6 percent for monthly adjustable loans and
Figure 2
Percent of total debt at risk is not uniformly distributed across
farm types, 2009
Other cash grain
Wheat–2%
Other livestock
6%
4%
Corn
14%
Dairy
Soybean and peanuts–1%
Cotton and rice–1%
24%
5%
17%
5%
Poultry
Hogs–3%
Other crops
Specialty crops
18%
Beef cattle
Source: USDA, Agricultural Resource Management Survey, NASS and ERS.
41
Agricultural Income and Finance Outlook / AIS-90 / December 2010
Economic Research Service/USDA
Figure 3
Number of farm businesses with fixed and variable rate loans, 2009
Both fixed and variable loans
56,103
6%
Only variable rate loans
100,687
12%
203,916
23%
512,742
59%
No loans
Only fixed rate loans
Source: USDA, Agricultural Resource Management Survey, NASS and ERS, 2009.
the highest average rate was 6.3 percent for variable rate loans adjusted at
periods exceeding 1 year.
Potential Impact of Reductions in the Market Value of
Farm Assets on Farm Business Debt-to-Asset Ratios
Given uncertainty in the current economic environment, there are concerns
about the possibility of future declines in the value of farm assets. Such a
decline would reduce agricultural collateral security. To evaluate how declining
asset values could affect loan collateral, we examine the number of farms
with debt-to-asset ratios greater than 40 percent. The debt-asset ratio measures
the proportion of farm assets f nanced through debt. As the debt-asset ratio
increases, farm operations are likely to face increasing diff culty securing
additional debt obligations. We def ne higher leveraged farms as those with a
debt-asset ratio above 40 percent and highly leveraged farms as those with a
debt-asset ratio above 70 percent. Farms with a high debt-asset ratio are said to
be “highly leveraged” and are particularly susceptible to f nancial diff culties
if creditors demand repayment or credit market conditions suddenly change.
In 2009, 66,000 farm businesses were highly leveraged. If farm asset values
decline, the number of highly leveraged farm businesses will increase, holding
debt levels constant. Figure 4 shows the estimated impact of a 10-, 20- and
30-percent decrease in the value of farm assets.
The number of farm businesses with debt-asset ratios between 41 and 70
percent increases by 4.4, 20.0, and 33.3 percent respectively given a 10-, 20-,
or 30-percent reduction in farm asset values. The share of farms with the
largest susceptibility to loan repayment issues, those with a debt-asset ratio
above 70 percent, increases more dramatically, by 4.8, 42.9, and 90.5 percent,
respectively. Therefore, holding all other things equal, a reduction in asset
values greatly increases immediate concerns of solvency for more farm businesses and lenders. Increasing numbers of highly leveraged farm businesses
are “at risk” if lenders demand repayment or farm businesses have to obtain
42
Agricultural Income and Finance Outlook / AIS-90 / December 2010
Economic Research Service/USDA
Figure 4
A decrease in asset values may lead to increased financial leverage
by farm businesses
Number of farms (thousands)
70
60
Original
50
20% reduction
10% reduction
30% reduction
40
30
20
10
0
41-70%
Above 70%
Debt/asset ratio
Source: USDA, Agricultural Resource Management Survey, NASS and ERS, 2009.
new loans. However, for the 59 percent of farms that had no debt in 2009,
there is no change in the value of their debt-to-asset ratio. Nonetheless, they
could be affected by reduced equity and increased collateral requirements for
future loans.
Potential Impacts of Changes
in Interest Rates on Debt At Risk
Figure 5 shows the number of farm businesses with debt at risk, as measured
by a debt repayment capacity utilization ratio exceeding 120 percent (see
box, “Estimating Debt at Risk”). Figure 5 suggests that increasing interest
rates on variable rate loans would have only a modest immediate impact on
the number of farms experiencing f nancial stress (holding everything else
constant). In the extreme case, if interest rates increased from 6 percent to 12
percent, the number of farms with “at risk debt” would increase by roughly
5 percent for farms that owe more than half of their current debt as variable
rate loans. In essence, if interest rates on variable rate loans increase, higher
principal and interest payments are required to service existing debt. This
means that an increasing number of farm businesses would be unable to meet
debt service requirements out of current business income, putting their debt
“at risk.” The 59 percent of farm businesses with no debt in 2009 would not
be affected immediately but could face higher interest rates for future loans.
Farms with debt at f xed interest rates would also not be affected immediately
but could face higher rates on new or consolidated loans.
43
Agricultural Income and Finance Outlook / AIS-90 / December 2010
Economic Research Service/USDA
Figure 5
An increase in interest rates yields modest short-term changes
in farm debt repayment capacity
Number of farms (thousand)1
90
80
70
60
50
40
30
20
10
0
6% adjustable
8% adjustable
10% adjustable
12% adjustable
Less than 50% of loan volume variable rate
More than 50% of loan volume variable rate
1Farms in the "Above 120%" DRCU class at varying adjustable interest
rate levels and variable loan volume packages.
Source: USDA, Agricultural Resource Management Survey, NASS and ERS.
44
Agricultural Income and Finance Outlook / AIS-90 / December 2010
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References
Ahearn, M., and D. Newton. 2009. Beginning Farmers and Ranchers,
EIB-53, USDA, Economic Research Service. Available at: www.ers.usda.
gov/publications/EIB53/.
Ahearn, M., J. Johnson, and R. Strickland. 1985. “The Distribution of
Income and Wealth of Farm Operator Households,” American Journal of
Agricultural Economics, Vol. 67, No. 5, pp. 1087-1094.
Baffes, J., and T. Haniotis. 2010. Placing the 2006/08 Commodity Price
Boom into Perspective, Policy Research Working Paper No. WPS 5371,
World Bank, Washington, DC. Available at: http://go.worldbank.org/
GLNNMUI3Q0/.
Good, K. 2010. FarmPolicy.com: A Summary of Farm Policy News.
Available at: http://www.farmpolicy.com.
Harris, J.M., J. Johnson, J. Dillard, R. Williams, R. Dubman. 2009. The Debt
Financing Landscape for U.S. Farming and Farm Businesses, AIS-87,
USDA, Economic Research Service. Available at: http://www.ers.usda.
gov/Publications/AIS87/AIS87.pdf.
Hoppe, R., and D. Banker. 2010. Structure and Finances of U.S. Farms: Family
Farm Report, 2010 Edition, EIB-66, USDA, Economic Research Service.
Available at: http://www.ers.usda.gov/Publications/EIB66/EIB66.pdf.
U.S. Department of Agriculture, National Commission on Small Farms
(USDA, NCSF). A Time to Act: A Report of the USDA National
Commission on Small Farms. Miscellaneous Publication 1545 (MP-1545).
January 1998.
45
Agricultural Income and Finance Outlook / AIS-90 / December 2010
Economic Research Service/USDA
Appendix: Forecast Methods
and Accuracy
• USDA’s s hort-term f arm-income f orecast m odel had mea n f orecast
errors for cash re ceipts i n 20 09 ra nging f rom 0.02 percent for crop
receipts to 16.83 percent for livestock receipts.
• Forecast er rors f or t he f arm-level pa rtial-budgeting m odel, us ing
ARMS data, decreased in magnitude from 7.3 percent in 2005 to 5.5
percent in 2009, showing a more accurate forecast.
• The 20 06-to-2008 co mmodity-price boo m pro bably a ffected f orecasts in following years.
The USDA short-term farm-income forecast model forecasts receipts for individual commodities, Government payments, and production expenses. The
model operates on individual farm-level data from the most recent NASS data
available to ERS. Agriculture can be severely affected by many factors, as any
farmer knows, and thus the difference between the initial forecast of annual
income and the initial estimate, which are released 18 months apart, can be
large. The model creates quarterly forecasts of individual commodity items
and annual forecasts of various production expenses, noncommodity items, and
Government payments. It also forecasts annual prices-paid indexes, used principally in forecasting production expenses. To measure commodity output, it uses
a Törnqvist output index model. See box, “The ERS Short-Term Farm Income
Forecast Model” for a basic description of the forecast model. The model is
explained in depth in “Forecasting Farm Income: Documenting USDA’s
Forecast Model,” http://www.ers.usda.gov/Publications/TB1924/.
The purpose of reviewing forecasting accuracy is to determine and discuss
trends and events that have inf uenced prices and quantities of agricultural
inputs and outputs, such as economic or weather changes affecting production. The last review of forecast accuracy was completed for the Agricultural
Income and Finance Outlook, 2006 Edition, http://usda.mannlib.cornell.edu/
usda/ers/AIS//2000s/2006/AIS-11-30-2006.pdf.
Forecast performance in three areas—commodity items, production
expenses, and farm-income measures—are examined from 2005 to 2009.
Finally, the trends and events that have inf uenced variations between the
initial forecast and the initial estimate are discussed.
Appendix table A-1 shows forecast percentage errors for the USDA short-term
farm income forecast model. The mean forecast error for net cash income in
2009 was 8.21 percent but was lower than the mean forecast error for net farm
income by about 3 percentage points. This may ref ect that net cash income
includes only cash receipts and expenses and is generally less variable than net
farm income. Mean forecast errors from 2005 to 2009 ranged in magnitude
from $427 million for livestock cash receipts to -$61.6 billion for total gross
income. Forecast percentage errors in 2009 ranged from 0.02 percent for crop
cash receipts to -131.82 percent for the value of inventory adjustment. The large
percentage forecast error for the value of inventory adjustment ref ects relatively smaller dollar amounts than smaller percentage errors in other categories
corresponding to larger dollar amounts. The mean percentage error of -299.92
46
Agricultural Income and Finance Outlook / AIS-90 / December 2010
Economic Research Service/USDA
The ERS Short-Term Farm Income Forecast Model
The ERS model described in this report presents 5 calendar years of farm income
data. W hen t he f orecast f or t he c urrent ca lendar y ear is f rst presen ted ea ch
February, t he v alues f or t he c urrent a nd i mmediately pre vious ca lendar y ears
in the model are both forecasts and the values for the f rst 3 ca lendar years are
estimates. At this point, the forecast for the fourth (i.e., previous) year is the base
year for the f fth (i.e., current) year’s forecast. The model results are f rst updated
in August. At this point, the model presents 4 years of estimates, releasing, for the
f rst time, estimates of farm income for the fourth (i.e., previous) year and revisions to estimates for the previous 3 years.
The current year i n t he mo del is s till a f orecast, which ha s b een updated w ith
new data and revised, using the new estimates for the fourth year as its base. The
forecast year i n t he mo del is ag ain u pdated i n N ovember, us ing a ny d ata t hat
have been revised since August. The f nal forecast is presented in February of the
following year. By February 2011, the forecast for 2010 will include all the f nal
information (production, trade, prices received) for 2009/10, plus the latest forecasts for 2010/11. The 12-month average annual prices paid indexes published by
USDA’s National Agricultural Statistics Service (NASS) will also be substituted
for the forecasts in the model.
Appendix table A-1
Forecast error for USDA short-term farm income forecast model
Income statement
Mean
forecast
error
2005-09
Forecast percentage error
2005
2006
$ billion
Cash income statement:
1. Cash receipts
Crops1
Livestock
2. Direct Government payments
3. Farm-related
income2
4. Gross cash income (1+2+3)
2007
2008
2009
Mean
percentage
error
2005-09
Percent
-54.537
-54.964
0.427
-6.91
-8.25
-5.68
-3.16
-8.80
2.51
-9.18
-9.16
-9.21
-7.56
-11.78
-2.08
7.13
0.02
16.83
-3.94
-7.60
0.48
1.601
-0.97
17.12
4.46
7.19
-18.57
1.85
-2.756
-4.61
3.25
12.45
-2.40
-18.70
-2.00
-55.695
-6.25
-1.57
-7.52
-6.77
4.35
-3.55
expenses3,4
-31.418
-7.22
-0.57
-1.49
-7.96
3.27
-2.79
6. NET CASH INCOME (4-5)
-24.275
-3.85
-4.59
-23.09
-3.61
8.21
-5.39
Farm income statement:
7. Gross cash income (1+2+3)
8. Nonmoney income5
9. Value of inventory adjustment
-55.695
-2.905
-3.023
-6.25
-27.49
-1059.86
-1.57
-24.74
-206.86
-7.52
-0.79
15.40
-6.77
5.91
-116.49
4.35
28.81
-131.81
-3.55
-3.66
-299.92
10. Total gross income (7+8+9)
-61.623
-8.81
-2.08
-6.79
-5.29
4.08
-3.78
11. Total expenses
-38.225
-7.54
-1.40
-1.19
-7.58
2.52
-3.04
12. NET FARM INCOME (10-11)
-23.398
-12.72
-4.77
-23.21
2.32
11.14
-5.45
5. Cash
Note: Forecast error = (forecast-estimate)/estimate
1Includes CCC loans.
2Income from custom work, machine hire, recreational activities, forest product sales, and other farm sources.
3Excludes depreciation and perquisites to hired labor.
4Excludes farm households.
5Value of home consumption of farm products plus the imputed rental value of operator dwellings.
Source: USDA, Economic Research Service.
47
Agricultural Income and Finance Outlook / AIS-90 / December 2010
Economic Research Service/USDA
Appendix table A-2
Forecast error for farm-level partial-budgeting model, comparing forecasts for 2005 and 2009
(from February 2006 and February 2010) to actual ARMS survey results (November 2006 and November 2010)
Net cash
income
Income statement
All farms
2005 2009
Livestock
receipts
2005
Crop
receipts
Government
payments
Cash
operating
expenses
Farm
debt
2009 2005 2009 2005 2009 2005 2009 2005 2009 2005 2009
3.6
Percent difference
-1.2 -9.2
4.0 -4.6
6.5
3.5
-10.6
-6.6
6.5
26.3
2.2
23.3
-9.3
3.9
-6.0
-9.3
7.4
0.7
10.1 -15.1
-8.1
-3.6
5.9
1.3
All farm businesses
13.3
2.8
-2.7
-6.8
11.4
-1.4
-3.7
4.6
2.7
Rural residence farms
10.5
4.5
-15.6 -12.3 -15.6
-9.2
-1.1
-1.7
-7.9
Resource region:
Heartland
Northern Crescent
Northern Great Plains
Prairie Gateway
Eastern Uplands
Southern Seaboard
Fruitful Rim
Basin and Range
Mississippi Portal
0.8
12.6
12.8
21.0
23.0
-48.0
30.1
64.9
-19.2
-8.6
-10.2
5.4
-4.6
-19.0
27.8
23.0
126.6
-13.2
Production specialty:
Other cash grain
Wheat
Corn
Soybean and peanuts
Cotton and rice
Other f eld crops
Specialty crops
Beef cattle
Hogs
Poultry
Dairy
Other livestock
12.4
42.0
12.9
-55.6
9.8
22.5
29.3
19.6
-21.3
-30.2
-6.1
70.9
Commercial farms
Intermediate farms
Farm
assets
-2.3
4.5
-4.3
-3.2
-2.4
-0.9 -0.5
-0.1 -11.9
3.6
11.4
-5.3
-6.1
5.1 -0.3
-6.8 -16.3
-2.7
8.9
-5.8
4.6
-4.2
-4.5
4.4
-2.5
-8.6
2.1
-26.1 -21.1
8.5 -8.8 -6.0 12.8 -4.3 -9.7 10.0 -7.1
5.7
0.9
-8.9
4.4 -0.3 -0.8 -4.5 -42.2 -10.7
3.0
3.7 -6.1 -4.3 -5.3
14.2 -11.7 16.6
4.6 16.1 10.8 11.5 -1.4 25.5 -1.3
4.2 -9.5
-13.3 -18.1
8.9 -18.9 -4.5
9.6 -11.6 -16.3 24.3
0.7 -10.2 -9.6
11.9 25.1 22.8
9.6 17.9 -41.9 13.3 11.6
5.1 -1.7 -17.2 -12.5
11.1 21.5 -23.7 -8.7
0.1 20.8
3.5 -2.9
3.8 -12.1
7.0 -10.1
18.4
4.3 23.6 22.2 -5.7 18.1 19.2 17.0
6.6 10.6 25.2
0.5
31.7 22.1 36.0 57.6
1.7 -6.0 18.8 31.4
0.0 -22.7
4.9 62.8
42.6 -4.1 -18.4 -37.6 -57.5 -6.2 -6.4 -40.5 -29.6 -23.7
2.8 -40.6
10.5 -26.6 -20.4
-13.3
41.7
4.8
8.1 -46.9
7.5
-19.6 -1288.3 -27.0
32.9
55.2 -10.2
59.4 -14.0 -4.5
20.8
44.1 -26.9
-40.8
-5.9 -18.0
-74.0
7.3 -10.2
-2.6 -148.2 -34.5
-65.3
-0.8 -13.8
-366.3
38.9 41.6
12.7
4.2 -2.1 41.1
-3.6 -7.5 -10.6
2.6
-2.6 -9.4 -8.5 19.1
-1.1 -27.2 -22.4
6.0
22.3
1.2 -16.8 30.6
-1.8
9.5 23.4 15.0
19.4 11.8 34.0 -1.2
12.9 -9.4 -10.4 -8.8
-9.6
4.5 -2.7 43.6
49.2 -27.4 -25.2 -20.0
14.5
8.4 -82.5 -56.9
25.6
7.8 13.5 -22.4
2.9
-17.5
-7.1
-17.8
20.3
-0.5
17.8
-11.5
12.2
-60.6
-0.7
22.8
0.4
-2.2
-12.4
-27.3
-8.7
-1.9
6.9
-10.8
15.5
-23.2
-7.3
13.9
Note: Percentage differences are claculated as (forecast-actual)/actual.
Source: USDA, Agricultural Resource Management Survey, NASS and ERS.
percent from 2005 to 2009 is associated with a $10-million forecast error for
inventory adjustments, while the -7.60-percent forecast error for crop receipts
is associated with a forecast error of $7.24 billion. The mean forecast errors
from 2005 to 2009 were primarily plus or minus 5 percent compared with the
estimate, with the exception of cash receipts from crops and value of inventory
adjustment. These trends were not surprising as an unexpected commodity
price boom occurred in the study period as investors increasingly speculated in
commodities, and as fuel prices f uctuated greatly (Baffes and Haniotis, 2010).
Appendix table A-2 reports forecast errors for selected components of the
farm business f nancial statements. The forecast error is based on a comparison (in percentage terms) of the February 2006 forecast and the actual 2005
ARMS results (as the base), and of the February 2010 forecast and the actual
2009 ARMS results (as the base). The estimates for farm business income
48
Agricultural Income and Finance Outlook / AIS-90 / December 2010
Economic Research Service/USDA
1.4 -8.4 -3.0
8.9
4.1 -7.9 -4.7 -7.0
-2.9 -0.2 -13.6 -4.6
4.9 -23.1 -10.3 -20.4
-6.3 -7.2 35.8 44.5
31.9
2.3 24.7 12.3
14.6 -4.1
7.8 -3.4
1.8 -18.0
4.0 -5.5
10.7 -6.8 -7.0 -12.4
4.9 -11.3 -7.5 -17.9
3.8 -9.1
0.4 -26.7
13.3 38.6
3.2
6.4
are for intermediate and commercial farms. Across the selected components
for all farm businesses in 2009, forecast errors ranged from 1.4 percent for
crop receipts to 6.8 percent for livestock receipts. Forecast errors derive from
two sources. First, they can result from different outcomes than the index
ref ecting quantity and price changes predicts for the sector as a whole. They
can also result from the static nature of the partial budgeting model where
farms adapt and/or structural changes occur from one survey year to the next.
The forecast model was more accurate in 2009 than in 2005, with the mean
magnitude for forecast error for All Farms, Commercial Farms, Intermediate
Farms, All Farm Businesses, and Rural Residence Farms decreasing from 7.3
percent in 2005 to 5.5 percent in 2009.
Appendix f gure A-1 shows the percentage error by resource region. The
greatest percentage forecast errors occurred in resource regions with smaller
shares of farms or businesses, such as the Mississippi Portal and Basin and
Range regions, suggesting that a smaller sample survey size leads to greater
forecast errors in those regions. The more accurate percentage forecast errors
occurred in regions with greater shares of U.S. farms and farm businesses
(and larger sample survey sizes), such as the Heartland, Northern Crescent,
Fruitful Rim, and Prairie Gateway.
Appendix figure A-1
Forecast accuracy of farm-level partial-budgeting model
Percent difference
140
120
100
2005 Net cash income
2005 Cash operating expenses
2009 Net cash income
2009 Cash operating expenses
80
60
40
20
0
-20
-40
-60
Heartland
Northern
Crescent
Northern
Great Plains
Prairie
Gateway
Eastern
Uplands
Southern
Seaboard
Fruitful
Rim
Note: See map, p. 11, for ERS Resource Regions.
Source: USDA, Agricultural Resource Management Survey, NASS and ERS.
49
Agricultural Income and Finance Outlook / AIS-90 / December 2010
Economic Research Service/USDA
Basin and
Range
Mississippi
Portal
Information Contacts
Timothy Park
Coordinator and Farm Income Outlook
(202) 694-5446
[email protected]
Mary Ahearn
Economic Well-Being of Farm Operators and Households
(202) 694-5583
[email protected]
Ted Covey
Cash Receipts
(202) 694-5344
[email protected]
Kenneth Erickson
Financial Performance of Farm Sector; Farm Assets, Farm Equity
(202) 694-5565
[email protected]
J. Michael Harris
Financial Performance of Farm Sector; Farm Debt
(202) 694-5386
[email protected]
Todd Kuethe
Land Values
(202) 694-5593
[email protected]
Chris McGath
Production Expenses and Farm Related Income
(202) 694-5579
[email protected]
Andrew Morton
Branch Chief, Farm & Rural Business
(202) 694-5570
[email protected]
Mitch Morehart
Financial Performance of Farm Businesses
(202) 694-5581
[email protected]
50
Agricultural Income and Finance Outlook / AIS-90 / December 2010
Economic Research Service/USDA
Stephen Vogel
Government Payments
(202) 694-5368
[email protected]
Jeremy Weber
Economic Well-Being of Farm Operators and Households
(202) 694-5584
[email protected]
Robert Williams
Farm Debt
(202) 694-5053
[email protected]
Shawn Wozniak
Livestock Receipts
(202) 694-5592
[email protected]
51
Agricultural Income and Finance Outlook / AIS-90 / December 2010
Economic Research Service/USDA
| File Type | application/pdf |
| File Title | Agricultural Income and Finance Outlook |
| Subject | Value added, farm income, farm costs, farm operator household, farm returns, financial performance, farm finance, wealth, net wo |
| Author | Timothy Park, coordinator |
| File Modified | 2010-12-22 |
| File Created | 2010-12-15 |