Income Outlook and Financial Circumstances Vary Among
Farm Businesses
Average net cash income for farm
businesses (intermediate and commercial operations,
including nonfamily farms) is projected to be $74,700
in 2008. This would be about a 9-percent increase from
the 2007 forecast of $68,700. The projected change in
income will not affect all farm businesses the same manner
or to the same degree. There is considerable variation
in business structure, including the extent to which assets
are owned, the mix of crop and livestock produced, the
contribution of government payments to gross income, and
the relative importance of energy inputs and borrowed
capital to production costs. Several classifications of
farms—including primary commodity produced and geographic
location—reflect this diversity.
The income forecast across farm business types reflects
the variability in expected market conditions and production
costs between different crop and livestock categories
in 2008. The forecast, however, does not take into account
dramatic crop acreage shifts that occurred after 2006
(the base year). The shifts were motivated by rising corn-based
ethanol production and high corn prices, rising wheat
prices, and a surplus of soybeans. In 2007, the acreage
shift was led by a 17-million acre increase in feed grains,
including 15.3 million more acres of corn. Winter wheat
acreage increased by about 3.1 million acres and harvested
hay was up by nearly 1 million acres. These increases
were accommodated by an 11.9-million-acre decline in soybean
plantings, 1.3 million fewer acres of spring wheat, and
4.4 million fewer acres of cotton.
Average farm business net cash income is forecast to
increase for all types of crop producers except specialty
crops. Farm businesses that specialize in the production
of mixed cash grains, wheat, corn, and soybeans are projected
to have the largest increases (more than 60 percent),
reaching their highest average net cash incomes of this
decade. For many of these producers, commodity price increases
stemming from strong biofuels and export demand have outpaced
substantial cost increases for inputs such as fertilizer,
seed, and labor.
After declining in 2007, average net cash income of
farm businesses that specialize in cotton and rice production
are forecast to remain steady, but at levels 26 percent
below income levels attained earlier in the decade. For
specialty crop (fruits, vegetables, nursery and greenhouse)
producers, receipts are not increasing fast enough to
keep up with projected higher expenses. Labor, fertilizer,
and seed represent 60 percent of total cash expenses on
these farms and together are forecast to increase by 8
percent in 2008, compared with a projected 3-percent increase
in crop receipts.
For most farm businesses specializing in livestock production,
average net cash incomes are expected to fall below 2007
levels, with dairy (-24 percent), hog (-14 percent) and
cattle operations (-14 percent) projected to have the
largest declines. Dairy and hog producers are among the
most intensive users of feed, which represents, on average,
44 percent and 37 percent of total cash expenses. The
expense forecast to increase most in 2008 is feed, at
18 percent. Overall demand for dairy products was particularly
strong during most of 2007, translating into higher prices
for fluid milk, butter, cheese, and other dairy products.
These strong prices are expected to soften a little in
2008, resulting in a 2-percent decline in total livestock
receipts.
Even with the projected decline in average net cash income,
dairy farm businesses are expected to achieve their second
highest income levels of the decade. Projected income
declines for cattle producers could result in the largest
drop (25 percent) from the previous 5-year average. For
beef cattle businesses, this would be the third consecutive
decline in average net cash income since peaking in 2005
at $46,200. Average net cash income in 2008 is also expected
to fall below the previous 5-year average for poultry
(-8 percent) and hog (-5 percent) operations.
Geographic concentration of commodity production explains
much of the regional variation in the income outlook for
farm businesses. Regions with a high concentration of
grain and soybean production such as the Heartland,
Mississippi Portal, and Northern Great Plains
are forecast to have the largest increases in average
net cash incomes. Regions forecast to have the largest
declines in average net cash income from 2007 are the
Fruitful Rim (down 18 percent) and Northern
Crescent (down 5.5 percent). In both regions, specialty
crops and dairy account for a large share of commodity
production. The Eastern Uplands, Basin and
Range, and Southern Seaboard, where livestock
farms tend to be more prevalent, are expected to have
average net cash incomes decline by 1-4 percent. The 2008
forecast would leave three regions (Prairie Gateway,
Fruitful Rim, and Southern Seaboard)
with average net cash income below the previous 5-year
average.
Net cash income is projected to vary widely by size
of farming operation in 2008. Commercial operations (sales
greater than $250,000), which represent about 11 percent
of farms and 75 percent of production, are expected to
experience a 7-percent increase in average net cash income.
Intermediate farms (primary occupation of farming and
gross sales below $250,000) are expected to have the largest
increase over 2007, at 20 percent. These farms tend to
specialize in cash grain and soybean production. About
63 percent of U.S. farms are classified as rural residences—operators
of which typically earn most of their household income
from off-farm sources. The vast majority of these rural-residence
farmers were employed off-farm prior to becoming farmers,
with a much larger share of both operators and their spouses
having off-farm jobs. The farm operations of these households
have for many years averaged a negative net cash income,
with 2008 being no exception.
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