Net Farm Income Estimated Up in 2011*
Net farm income is forecast at $98.1 billion for 2011, up $19 billion (24.1 percent) from 2010. Net farm income reflects income from production in the current year, whether or not sold within the calendar year.
Net cash income, at $108.7 billion, is forecast up $16.4 billion (17.8 percent) from 2010, and $33.1 billion above its previous 10-year average (2001-2010). Net cash income reflects only the cash transactions occurring within the calendar year. Net farm income is a measure of the increase in wealth from production, whereas net cash income is a measure of solvency, or the ability to pay bills and make payments on debt. Net value added is expected to increase by almost $19.5 billion in 2011 to $149.4 billion. The rates of increase in both income measures are down slightly from the previous year. The 2011 inflation-adjusted forecasts of net value added of agriculture to the U.S. economy and net cash income are the highest values recorded since 1974.
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Highlights
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Net farm income is forecast to rise 24.1 percent in 2011, a decline from the 28.3 percent increase in 2010.
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Sales of crops by U.S. operators are expected to surge in 2011. An even larger percentage increase is expected for U.S. livestock receipts.
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Large, double-digit percentage increases are forecast for wheat, corn, hay, cotton, red meats, dairy, eggs, and turkeys in 2011.
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Rice sales show a contrary trend and are expected to decline almost 10 percent in 2011.
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Amounts in this article are in nominal dollars. Estimates and forecasts in constant (2005=100) dollars are available.
Crop and Livestock Sales Show Double-Digit Increases in 2011
Crop receipts are expected to surge in 2011 with an even larger percentage increase expected for livestock receipts. Large, double-digit percentage increases are forecast for wheat, corn, hay, cotton, red meats, dairy, eggs, and turkeys. Contrary to expected changes for most crops and livestock in 2011, rice sales are expected to decline almost 10 percent.
Sales of wheat are expected to increase almost 30 percent in calendar year 2011, reflecting an anticipated gain of more than $2 per bushel. Wheat acres harvested by U.S. farm operators and wheat production have been declining since 2008, with declining output expected in 2011 as well. Total U.S. domestic use of wheat is expected to decline in marketing year 2010 (June 2010-May 2011), but is expected to increase in marketing year 2011. Food and seed use is expected to increase during both the 2010 and 2011 marketing years. The large increase in 2010 marketing-year wheat exports is expected to be followed by a decline in 2011.
Despite a predicted rise in the annual average price, U.S. rice receipts in 2011 are expected to decline due to a reduction in the quantity of rice sold by U.S. farm operations. The quantity of rice harvested in 2010, which was sold from August 2010 through July 2011, increased 11 percent over the previous year, only to decline 24 percent in the 2011 marketing year. Total domestic and residual use of rice increased over 10 percent in marketing year 2010, largely due to a historically low milling yield and higher than average expected losses in transporting, processing, and marketing associated with a record crop and quality concerns. Domestic and residual use is expected to decline 10 percent in marketing year 2011, as milling yields return to more typical levels. U.S. rice exports, which increased about 3 percent in marketing year 2010, are forecast to decline more than 19 percent in marketing year 2011.
Much higher prices mean large predicted increases for corn and hay receipts in calendar year 2011. U.S. corn production is expected to decline for the second year in a row. Food, seed, and industrial (FSI) use is expected to account for a large share of U.S. corn disappearance in marketing years 2010 and 2011 (September 2010–August 2012). Alcohol for fuel continues to be the leading U.S. FSI use of corn, accounting for about 78 percent of FSI use. U.S. corn exports are forecast to decline in both marketing years, partially due to declining exports to Japan, the number 1 importer of U.S. corn. Reduced production is forecast for barley, oats, and sorghum, with especially large reductions in 2011 sorghum production. Forecast reductions in 2011 sales of sorghum and barley will more than offset an increase in sales of oats from U.S. farm operations.
Sales of soybeans and peanuts are expected to experience gains in 2011, aided by an increase in their annual average price. Soybean production, which declined slightly in 2010, is expected to experience a much larger decline in 2011. Soybean crush is expected to fall in marketing years 2010 and 2011 (September – August). Soybean exports, which increased negligibly in marketing year 2010, are expected to decline sharply in marketing year 2011. Declines are forecast for soybean meal domestic use and exports in both marketing years 2010 and 2011. Domestic use of soybean oil is expected to rise almost 12 percent from marketing year 2009 to 2011 while exports decline by 64 percent over that period. U.S. peanut production, which increased in 2010, is forecast to decline below its 2009 level in 2011. While a slight increase in domestic food use of peanuts is forecast for marketing year 2011, declining use is anticipated for peanut crush, exports, seed, and residual.
Cotton receipts in 2011 are forecast to rise substantially, reflecting higher prices for both lint and seed. U.S. production of upland cotton increased almost 50 percent in 2010, but declined 16 percent in 2011. Much of the increase in the 2010 marketing year was exported, and much of the decline in marketing year 2011 also came out of U.S. exports. Quantities sold of lint are expected to increase by 10 percent in 2011. U.S. cottonseed production, which increased 47 percent in 2010, is expected to contract about 14 percent in 2011. Demand for cottonseed meal is expected to decline 7 percent in marketing year 2011, while demand for cottonseed oil will rise by a similar percentage.
Increased sales are anticipated for fruit and tree nuts, as well as for vegetables and melons, in 2011. Increases in fruit and tree nut sales reflect a forecast rise in the category’s overall annual average price thanks to tight supplies in 2011. The late California navel orange harvest helped support grower prices in 2011. Orange juice exports benefited from strong foreign demand and a weak dollar. A smaller grapefruit crop is raising prices, but lemon prices are depressed due to large domestic supplies. A smaller apple crop in Washington State has kept prices high. Ample pear supplies have pressured fresh pear prices downward. Lower fresh grape production has kept prices at strong levels from last year. The avocado market was characterized by tight supplies and high prices. Drought has significantly reduced pecan production. Production of pistachios in 2011 is well above the previous 5-year average, but down from 2010. End-of-season quality declines and seasonal demand shifts lowered prices for lemons and strawberries.
Fresh vegetable production increased almost 2 percent in 2011. Export sales increased by 6 percent. Processing vegetable production declined in 2011 but increased in unit value by almost 50 cents per cwt. Potato sales are expected to increase in 2011, reflecting large increases in both quantities sold (8 percent) and price ($2.12 per cwt). Despite a large decline in production, as well as fewer exports sales, a large price gain ($7.45) in 2011 is expected to generate a large increase in dry bean sales.
U.S. livestock receipts are up significantly in 2011, largely driven by increases in red meat and dairy sales. Both are showing increases above 20 percent from the previous year. Turkey receipts are up 15 percent, driven by higher prices. Egg sales are also up significantly in 2011. Broiler receipts are down due to lower prices and reduced demand for breast meat.
Production Expenses To Rise $36 Billion in 2011
After falling $12.0 billion (4.1 percent) in 2009 and rebounding a relatively modest $4.5 billion (1.6 percent) in 2010, total production expenses are set to rise $35.7 billion (12.5 percent) in 2011 to a nominal record $321.3 billion. The 2011 jump resembles the large increases in production expenses in 2007 and 2008. This is the first time that expenses will have exceeded $300 billion. When adjusted for inflation, 2011 expenses are also expected to set a record, surpassing the previous peak reached in 1979.
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On the price side, total expenses are affected by an expected 12-percent increase in the Production Items, Interest, Taxes, and Wage Rate (PITW) prices-paid index. On the quantity side, total output (and therefore the quantity of inputs used) is predicted to decrease by 5.5 percent for crops and increase 1.2 percent for livestock. As a result, total output will be down 2.9 percent. Planted acres are forecast up 0.9 percent. Even with the expected increase in expenses, total expenses as a percent of gross farm income, at 77 percent, is expected to be 2 percent lower than in 2010.Only 3 of the 15 major expense categories are forecast to decrease in 2011. Feed is expected to rise $11.5 billion; livestock and poultry purchases, $3.9 billion; fertilizer and lime, $6.6 billion; fuels and oils, $3.7 billion; and miscellaneous expenses $3.3 billion. Seeds should also be up more than $1 billion in 2011.
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The increase in expenses will affect crop and livestock farms differently. The principal expenses for livestock farms are expected to increase nearly $15.4 billion (23.8 percent), while the principal crop expenses are expected to increase $8.1 billion (16.8 percent).The value of crop production is expected to rise 15.5 percent while the value of livestock production is forecast to go up 17.0 percent, so it is difficult to say which increase in expenses will impinge more on the net incomes of livestock farms and crop farms.
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In 2011, feed expenses are forecast to rise by $11.5 billion (25 percent) after rising less than 1 percent in 2010. Two factors contributing to this forecast are a 24-percent increase in the feed prices-paid index and the 1-percent projected rise in livestock output. The rise in the feed prices-paid index is due primarily to the forecast jump in feed grain and oilseed prices. The calendar-year price for corn, which constitutes over 90 percent of feed grains used, is expected to increase 57 percent in 2011. The calendar-year price for soybeans—the primary ingredient in soymeal, the principal oilseed feedstock—is expected to be up around 27 percent. The increase in the feed prices-paid index will not be as great as the increase in these prices because price changes for complete feeds, which have the heaviest weight in the prices-paid index, lag price changes in raw inputs used to manufacture complete feeds. The feed and residual use of feed grains should be down around 3 percent in 2011. Again, this drop may not be reflected in the amount of complete feeds fed because of the lag between the input of raw materials and the finished product. Also, the demand for feed from feedlots will be heavier than the net placements of cattle-on-feed suggests. Lighter feeder cattle are being sent to feedlots because of poor pasture conditions in some areas. These cattle will consume more feed while in the feedlot. Additionally, the number of grain-consuming animal units should rise around 1 percent.
Livestock and poultry purchases are forecast to be up $3.9 billion (19.9 percent) in 2011. Since cattle account for 75 percent of this expense, conditions in the cattle market are the main driver of these purchases. Net placements of cattle-on-feed for 2011 are forecast to be nearly the same as in 2010, but the cost of feeder cattle should be up over 22 percent because of abnormally tight inventories, stable demand for beef products, high prices for Choice retail beef, and exports. High retail prices for all beef products allowed feedlot operators to earn favorable returns for a time despite higher feeder cattle and feed costs. According to ERS’ High Plains Cattle Feeding Simulator, the net margin in feedlots was positive between October 2010 and April 2011. Returns have gone negative since April, however, as feed and feeder costs have risen faster than the price for fed cattle. Pork production should be up 1 percent and prices for hog feeders will increase 20 percent in 2011. Broiler production is forecast down slightly in 2011, while prices should be up a small amount.
The principal driver of crop-related expenses throughout 2002-2011 has been changing input prices. Acres planted to principal crops have not been a factor in the long-term growth in these expenses since they have never exceeded the 327 million acres planted in 2002. Use of pesticides and more expensive seeds with increasingly complex genetic traits has increased, and this demand has been a factor in rising prices over this period. Increases in the price of natural gas, a principal source of many fertilizers, have contributed to the rise in fertilizer prices which currently stand more than 200 percent above their 2002 level.
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Prices for all crop-related inputs are expected to be up in 2011. Acres planted to principal crops will not be a big factor in 2011, as they are forecast to rise 0.9 percent. Overall, grain and oilseed production should be down almost 6 percent. However, acres planted to production of corn, a heavy user of inputs, is forecast to have expanded 3.7 million acres. Production of fruits, nuts, and vegetables should be nearly the same in 2011 as in 2010, and cotton production is forecast down 16 percent.The principal crop-related expenses grew only 1.7 percent in 2010 and are expected to rise 16.8 percent in 2011, due largely to an expected increase of 31 percent in fertilizer expenses.
Between 1999 and 2008, prices paid for seeds rose 146 percent, but this upward movement slowed considerably in 2009 and 2010, with seed expenses rising only 8 percent. In 2011, seed purchases are predicted to rise $1.3 billion (8.1 percent) because of a rise of 7.1 percent in prices paid for seeds and the slight expansion of acres planted.
Fertilizer prices rose steadily between 2002 and 2008 before dropping in 2009. As with seeds, fertilizer expenses rose around 5 percent in 2010. In 2011, fertilizer expenses are forecast to resume their steep climb, rising an estimated $6.6 billion (31 percent), as annual average prices paid rise nearly that much. One factor in this increase will be higher demand due to the increase in corn planted acreage. Also, the cost of energy, which influences the cost of many fertilizers, will likely continue to go up throughout 2011.
Pesticide expenses decreased about 8 percent ($900 million) in 2010 as prices paid for pesticides fell and planted acreage declined. In 2011, pesticide expenses are forecast to rise around $200 million (2 percent) as a result of a 1-percent rise in prices paid and the increase in planted acres.
As with fertilizer, prices paid for fuel rose dramatically between 2002 and 2008 before dipping 34 percent in 2009. Annual average prices paid for fuels were back up in 2010 and expenditures rose almost $500 million (4 percent). In 2011, prices paid are forecast to rise another 27 percent as Refiner Acquisition Cost (RAC) is expected to increase 32 percent. The price movement and increased acreage are forecast to raise expenditures for fuels and oils by $3.7 billion (28 percent).
The 3 manufactured inputs—fertilizer, pesticides, and fuels/oils—together are forecast to increase $10.5 billion (23 percent) in 2011. These expenses will constitute 17.2 percent of total expenses in 2011, up from 15.7 percent in 2010.
Payments to Stakeholders Rise with Total Expenses
Payments to stakeholders, a claimant of net value added, do not generally track movements in net farm income. The year-to-year consistency in payments to stakeholders follows from the fact that they do not share the risk of equity holders. In 2011, payments to stakeholders are forecast to be up 1 percent ($500 million), a much smaller percentage increase than net farm income. They are expected to constitute 16.0 percent of total production expenses (nearly 2 percent less than in 2010) and 34 percent of net value added (5 percent less than in 2010). Hired labor and interest expenses are forecast to decrease while net rent to nonoperator landlords is set to increase.
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Total labor expenses are forecast to fall around 1.6 percent ($450 million) in 2011 as a result of a forecast 2.3-percent decrease in total output coupled with a 1.3-percent rise in wage rates. Employee compensation for hired labor should increase about 1.1 percent ($250 million). Total output on three types of farms that employ the most labor—vegetables; greenhouse and nursery; and dairy—is expected to be up in 2011. Fruits and nuts output should be down marginally in 2011. Cash receipts on all these farms will be up almost 12 percent in total, following an 11.6-percent rise in 2010, led by dairy cash receipts, which are forecast up almost 26 percent.
At $13.6 billion, net rent to nonoperator landlords is expected to increase nearly $1 billion (7.5 percent) in 2011. This rise is about one-third of the increase in 2010. Cash and share rent are together forecast to rise 5.6 percent, in line with increases in land values and the value of crop output. They will not be affected much by the 1-percent increase in planted acres. Government payments to landlords will be down and FCIC indemnities to landlords are projected to rise in 2011.
Interest expenses are forecast to fall around 1.6 percent ($250 million) in 2011. Real estate interest expenses are expected to drop 4.9 percent, offset by a 3.0-percent increase in nonreal estate interest expenses. Debt is discussed in the balance sheet chapter.
Government Payments Forecast at $10.6 Billion
Government payments paid directly to producers are expected to total $10.6 billion in 2011, a 14.8-percent decrease from the estimate of $12.4 billion paid out in 2010. Direct payments under the Direct and Countercyclical Program (DCP) and the Average Crop Revenue Election Program (ACRE) are forecast at $4.71 billion for 2011. Direct payment rates are fixed in legislation and are not affected by the level of program crop prices. However, the 2.7 percent decline in direct payments forecast in 2011 relative to the 2008-11 average is due to producers having enrolled in the ACRE program. Authorized under the Food, Conservation, and Energy Act of 2008, ACRE provides revenue-based payments to producers in exchange for a 20-percent reduction in their annual direct payment allotments beginning with the 2009 crop year.
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