 Promising
Economic Outlook for Agricultural Sector Continues
in 2007
Mitch
Morehart and James
Johnson
As producers gather their marketing plan
information together for a year-end evaluation and
future business planning, the overall financial
picture looks promising for farmers and ranchers
in 2007. The planning environment, however, may
have more uncertainties than in recent years. The
continued emergence of biofuels, particularly ethanol,
has stimulated corn prices and created uncertainty
across the grain complex. Price expectations for
corn are reminiscent of those in 1996, the last
time the ending stocks-to-use ratio fell below 8
percent. Uncertainty over acreage shifts has also
stimulated price increases for soybeans and, to
a lesser extent, for other crops, such as wheat,
where ending stocks are not as tight. Overall, crop
receipts are forecast to reach a new nominal record
of $133.5 billion in 2007, an increase of $11.9
billion over 2006. This would be the largest year-over-year
percentage increase in crop receipts since 1980.
The escalation in receipts, however, is concentrated
among a few crops. Nearly two-thirds ($7.6 billion)
of the increase in crop receipts are expected to
come from corn. Wheat and soybeans together will
account for another $2.7 billion (23 percent) of
the increase.
Higher prices for many of the program
commodities mean fewer government transfer payments
for programs that are price-dependent (counter-cyclical
payments, loan deficiency payments, marketing loan
gains, and certificate exchange gains). In 2007,
payments under these programs are forecast at $2.4
billion, down from $6 billion in 2006 and over $11
billion in 2005. As a result, total government payments
are forecast to be $12.4 billion in 2007, the lowest
amount since 2002. Receipts from the marketplace
are expected to make a larger contribution to the
incomes of farmers and ranchers in 2007. Government
payments as a proportion of net cash income are
one indication of the importance of payments as
a source of income. This ratio is forecast at a
near record-low 18 percent for 2007. In comparison,
the highest value for payments as a share of net
cash income occurred in 2000 when it reached 40
percent.
In 2007, total agricultural production
expenses are forecast to increase by $13.5 billion
(5.7 percent). This would be the fourth consecutive
year of more than 5-percent increases in expenses
and the second largest percentage increase, exceeded
only by the energy-driven rise in 2005. The largest
increase forecast for an individual component of
production expenses is a 13-percent increase in
feed costs. After 7 consecutive years of increases,
expenses for fuels and oils are forecast to decline
slightly but will remain well above levels experienced
earlier in the decade.
The outlook for commodity market
receipts, production expenses, and government payments
translates into a net value added to the U.S. economy
in 2007 of $118.5 billion. This would be $10 billion
below the record in 2004 but well above the previous
10-year average of $100.7 billion. Net value added
is a measure of the income earned by those contributing
resources to agricultural production. The major
stakeholders, which include hired labor, nonoperator
landlords, and agricultural lenders, are expected
to receive nearly $52 billion as a return on their
contribution to production agriculture. The remainder,
$66.6 billion, is referred to as net farm income
and represents the farm operator's share of income
from the sector's production activities. At this
level, net farm income in 2007 would be $6 billion
higher than in 2006 and $9 billion above the previous
10-year average. Net cash income, unlike net farm
income, does not include the value of home consumption,
changes in inventories, capital replacement, and
implicit rent and expenses related to the farm operator's
dwelling—none of which reflect cash transactions
during the current year. It represents funds that
are available to farm operators to meet family living
expenses and make debt payments. The 2007 forecast
shows a $500-million increase in net cash income
from 2006—nearly $3 billion higher than the
previous 10-year average of $64.6 billion.
Projected changes in net cash income
vary widely by commodity specialization. Farms that
specialize in the production of mixed cash grains,
wheat, and corn are projected to have their highest
average net cash incomes of this decade after increases
of 17 to 29 percent over 2006 levels. In contrast,
average net cash incomes are forecast to decline
for specialty crop producers by 9 percent and farms
that specialize in cotton and rice by almost 4 percent
from their 2006 levels. The only projected increase
in average net cash income among livestock producers
in 2007 is for poultry, although at 1.5 percent,
it would be a relatively small increase over 2006.
The largest decline is forecast for hog producers
at 19 percent.
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