Net Farm Income Forecast at Record
$95.7 Billion in 2008
Net farm income is forecast
to be $95.7 billion, 10.3 percent above the $86.8 billion
farmers are estimated to have earned in 2007 and 57 percent
above the 10-year average of $61.1 billion.
Net cash income, at
$101.3 billion, is forecast to be $13.9 billion above
2007. This would be the first time that net cash income
has exceeded $100 billion. Net cash income is projected
to rise more than net farm income because of the carryover
of 2007 crops, which are being sold in 2008.
The story for 2008 is the value of crop
production which, at $188.8 billion, is forecast to
exceed its previous record (set in 2007) by $38 billion,
a 25-percent increase. Prices of major crops (corn, soybeans,
wheat) were trending upward in late 2007 and continued
doing so in the first part of 2008.
The values of livestock production and livestock cash
receipts are projected to increase about 6 percent
in 2008. Higher sales are projected for all livestock
sectors, but particularly for broilers, hogs, cattle,
and eggs.
In 2007, net farm income was at a record level and ended
the year strong with many key economic indicators at very
favorable levels. Commodity prices were above recent levels
and in some cases (wheat, soybeans, corn, milk) continued
to rise. Exports were strong as the weak dollar made U.S.
commodities more competitive in international markets,
and ending-year stocks of many commodities were low.
Commodity prices continued to surge in the early months
of 2008 and are expected to remain relatively high throughout
2008, even though they have backed off their highs for
the year. Corn production is projected to be the second
highest on record and soybean production
is projected to be the fourth highest on record. Consequently,
with large harvests to sell at high prices, the outlook
for the farm economy as a whole is for another good year
in 2008, driven by strong demand for feed crops, oilseeds,
and food grains.
There are many unknowns when forecasting farm income
in the third quarter of the year, but based on the best
information available on production and market conditions,
the farm sector's net value added to the national economy
is forecast to be up 8.9 percent in 2008. Its projected
value of $144.2 billion would be $11.7 billion over 2007
and 39 percent over its 1998-2007 average.
d
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
2008 the rise in the value of crop production is expected
to be nearly five times that of livestock.
Feed costs are a large component of livestock expenses,
and the exceptionally high prices for feed crops are pinching
livestock producers. Rising costs cause livestock producers
to eliminate their least productive animals and cut back
in less profitable areas of their operations.
Net value added and net farm income have followed the
value of commodity production over both the long term
and in year-to-year fluctuations. Because farmers typically
do not vary their production mix dramatically from year
to year, purchases of production inputs have been relatively
stable. Thus, the direction and magnitude of annual changes
in the value of livestock production have arisen primarily
from market prices for livestock and livestock products.
On the other hand, variability in the value of crop production
is determined by both market prices and production levels.
Crop production varies with changes in yields due to weather,
plant disease, and pests.
d
See our glossary for
definitions of terms.
See the official
USDA estimates and forecast tables.
Commodity Prices
Boost Farm Income
In general, 2008 is projected to be an exceptional year
for U.S. crop producers, particularly for feed crops,
oilseeds, and food grains. The boost in 2008 U.S. farm
income is primarily the result of high commodity prices.
In the livestock sector, prices for cattle and milk are
expected to remain well above their average over the last
10 years. Prices for a number of major commodities rose
throughout 2007, and attained unexpectedly high levels
for corn, wheat, soybeans, and milk. Higher prices are
principally due to strong demand from the domestic biofuels
industry and from foreign buyers. As a result, farmers
are receiving high prices despite their high levels of
production (see monthly prices for Crops
and Livestock).
The growing use of crops in the production of biofuels
has increased demand for these commodities, putting upward
pressure on prices. Corn producers are the primary beneficiaries,
but soybeans are also used in biodiesel production. Prices
of other feed crops and oilseeds have also risen as corn
and soybean consumers have sought lower cost alternatives.
The resulting competition for acreage has also raised
prices of pulses, potatoes, and processing vegetables
as processors and shippers struggle to find reliable supplies
of these crops. Inadequate rainfall in competitor countries
and increased international consumption (from growth in
population and rising incomes) has reduced world supplies
of corn and soybeans.
The combination of reduced global food supplies and
higher incomes in developing countries with large populations
is translating into rising effective demand for farm commodities,
regardless of origin. In addition, the U.S. dollar has
depreciated significantly against major foreign currencies
in recent years. The lower value of the dollar amounts
to greater effective demand for U.S. exports, boosting
farm-level prices to a level that more than offsets the
increase in production costs resulting from higher prices
on imported production inputs, particularly fuel and fertilizers
(nitrogen and potash).
d
d
The income earned from farm production, as measured in
net value added, is distributed among stakeholders (rent,
wages, interest) and producers for their contributions
of land, labor, capital, and management acumen. The incomes
earned by stakeholders are agreed upon in advance of their
contribution to the production activity. Consequently,
their earnings are not subject to the vagaries of markets
and production. The lack of variability in their earnings
is in contrast to the sawtooth pattern of net farm income.
Producers absorb the inherent risks of both their own
production and the prices generated by global markets.
As such, they bear the brunt of losses when production
and prices decline and reap the gains when production
and price are above average.
d
d
Not All Farmers Share Equally in Income Gains
Because of the diversity of U.S. agriculture, annual
change in economic fortunes can vary greatly across commodities
and regions. States that are leading producers of corn,
soybeans, and wheat stand to benefit the most in 2008.
Their primary commodity prices are rising faster than
other crops, meanwhile their expenses are roughly equivalent
with other commodities. Thus, the Midwest and Corn Belt
should be big beneficiaries of commodity price trends.
Livestock producers are expected to see larger increases
in production expenses than crop producers due to their
heavy reliance on feed.
A number of States
in the East, Southeast, and Mountain regions are experiencing
drought.
For the most part, these States do not account for enough
farm production to have a major impact on national farm
income measures. However, farmers in regions with significantly
lower levels of production benefit less from high commodity
prices since they have less to sell.
Farmers in these regions are also typically seeing a
greater rise in production costs for such things as irrigation
and feed/hay. When gross farm income is lower and production
costs are higher, net income for individual producers
can quickly turn negative for operations affected by drought.
Large Increases in Cash Receipts for Corn, Soybeans,
and Wheat Anticipated in 2008
Annual crop cash receipts are expected to increase by
29 percent in 2008, with increases anticipated for all
crop types except cotton. Ethanol demand, a cheap dollar,
and good overall production conditions for most crops
are expected to create record sales in 2008.
Feed corn sales are expected to exceed their 2007 record
by over 56 percent. Feed corn prices in 2008 are expected
to increase by over $1.42 per bushel from 2007, while
quantities sold are expected to exceed 2007 levels by
almost 16 percent. In spite of excessive rains and flooding
in the Corn Belt, the 2008 corn crop is forecast to be
the second largest on record. While feed and residual
use is down, as are exports due to increased global production,
use of feed grain for ethanol production is up. Feed corn
cash receipts are expected to account for almost 28 percent
of 2008 cash receipts from crop sales. Feed corn accounted
for almost 18 percent of all crop cash receipts from 2004
to 2006, before ethanol became a significant factor in
U.S. crop markets.
Annual soybean cash receipts are expected to increase
by almost 50 percent in 2008 and to account for over 16
percent of all crop cash receipts. Soybeans accounted
for about 14 percent of all 2004-06 crop cash receipts.
Average soybean prices in 2008 are expected to be about
$4.30 per bushel higher than in 2007.
Wheat cash receipts in 2008 are expected to increase
by over 62 percent from 2007 levels. Wheat's annual average
farm price is expected to increase almost $2.40 per bushel,
while quantities sold are expected to increase by almost
one quarter. More favorable weather has helped yields
and production. Rice cash receipts, led by an almost $5-per-bushel
increase in annual average price, are expected to increase
by 44 percent.
While cotton lint sales are expected to increase in
2008, this will likely be offset by a decline in cottonseed
supply. Thus, overall cotton sales are expected to decline
almost 10 percent in 2008. U.S. cotton production is expected
to be at its lowest level since 1989 as cotton producers
switch to crops with better returns The acreage reduction,
in addition to smaller seed weights has led to higher
cottonseed prices; however, this will not be enough to
increase cash receipts over last year. Meanwhile, the
share of the cotton crop rated as "good" or
"excellent" quality has declined while that
rated as "poor" or "very poor" has
increased. Still, U.S. exports are expected to increase
as U.S. cotton producers help fill the shortfall between
foreign production and foreign mill use.
Strong prices for melons, processed vegetables, potatoes,
dry edible beans, dry peas, and lentils have offset a
decline in fresh vegetable prices during the first half
of 2008. By the end of 2008, vegetable and melon cash
receipts are expected to rise more than 6 percent over
2007.
Cash receipts for fruits and tree nuts are expected
to rise almost 8 percent in 2008. While the average price
for all fruit in 2008 is expected to be slightly down
from 2007, this should be more than offset by increases
in the quantities sold for oranges, prunes and plums,
apples, and other fruits and tree nuts.
Overall, sales of all other crops are expected to rise
almost 4 percent in 2008. The average price for greenhouse
and nursery crops, which account for about 9 percent of
crop sales, is expected to increase just over 2 percent
from 2007. Cash receipts for tobacco are expected to increase
almost 11 percent over 2007 sales.
Exports Deliver Gains for Animal Sectors
Cash receipts for livestock, poultry, and dairy are projected
to reach a record high of $146 billion in 2008, based
on strong export demand. This is more than $8 billion
(6 percent) over cash receipts in 2007.
Cash receipts for cattle and calves in 2008 are expected
to increase 3 percent over last year. Continuing dry conditions
in the Southern Plains and Southeast are forcing some
cow-calf producers to commence supplemental hay feeding
in the summer months. These conditions are leading to
higher commercial cow slaughter as well as higher feedlot
placements of heifers; this will set the stage for reduced
inventories in the coming years. Despite increased supply
and competition from cheaper meats, cattle prices are
projected to move slightly upward in 2008. Exports, driven
by a weaker dollar and increasing acceptance of U.S. beef
in Japanese markets, are projected to increase 20 percent
in 2008. Additionally, imports of lean beef from Australia
and New Zealand and frozen processed beef imports from
South America have decreased significantly; American supplies
are being used to fill this void.
Hog revenues are expected to increase 11 percent in
2008 due to substantial increases in exports as well as
an increase in domestic demand. Pork exports are expected
to be up 72 percent over last year. Meanwhile, hog supplies
are projected to be 7 percent higher than in 2007. This
has suppressed some of the price growth that would otherwise
accompany increased domestic and foreign demand. Rising
feed costs are leading to higher sow slaughter rates than
in previous years. Prices for 2008 are expected to move
up an average of about $1.60 per cwt.
After tremendous growth in 2007, cash receipts for dairy
producers are projected to rise about 1 percent in 2008.
The slowing domestic economy and high retail milk prices
are expected to reduce consumption slightly; however,
exports of dairy products are expected to pick up some
of the slack. Higher herd numbers and increased per-cow
productivity are projected to boost supply by 2 percent
over 2007 levels. Prices are likely to drop slightly from
last year.
Building on 2007 gains, broiler receipts are expected
to increase 11 percent in 2008. Exports and the slowing
domestic economy, which leads consumers to seek cheaper
meat options, have helped to boost broiler prices. Egg
receipts are expected to be up 21 percent in 2008. Egg
prices skyrocketed in early 2008 due to declining supply.
Prices are expected to decline during the second half
of 2008 as growers respond by increasing the hen population,
but the average price of eggs will remain well above 2007
values. Turkey cash receipts are expected to increase
14 percent in 2008. Although supplies are up, prices are
projected to be higher due to a 14 percent increase in
exports.
Production Expenses
Up 16 Percent to Record High
Following an increase of $20 billion (8.9 percent) in
2007, total production expenses are expected to rise $40.4
billion (15.9 percent) in 2008 to a nominal record-high
$294.8 billion. If realized, expenses will constitute
76 percent of gross farm income, slightly more than in
2007. The 2008 increase will be the sixth straight since
2002 and, during the period, total expenses have been
climbing at an increasing rate.
d
Since 2002, nominal expenses will have risen $101.7 billion
(52.7 percent). Inflation-adjusted expenses have increased
31 percent and are approaching the record levels reached
in 1979-80.
d
Expenses are expected to rise more than $1 billion in
10 expense categories: feed; seeds; fertilizer; fuels
and oils; repair and maintenance; total labor; marketing,
storage, and transportation; miscellaneous expenses; net
rent to nonoperators; and capital consumption. These increases
are due to both increased production and higher input
prices. Crop output is expected to increase 1.2 percent
and livestock output 2.3 percent, producing a net rise
of 1.6 percent in total output. Meanwhile, prices paid
for production inputs, interest, taxes, and wages are
forecast to increase 12.4 percent. Since 2002, the level
of overall prices paid will have risen 51.5 percent, accounting
for a large share of the increase in total expenses. Three
expense items are forecast to decrease slightly in 2008:
livestock and poultry purchases and both real estate and
nonreal estate interest.
For the third straight year, feed expenses are forecast
to have the largest increase of any expense item as they
rise $9.8 billion (25.6 percent) to a record $47.9 billion.
The increase would be the largest ever for feed, eclipsing
the $6.7-billion increase experienced in 2007. Over the
last 3 years, feed expenses have risen $20 billion (71
percent). The primary reason for the rise in 2008 feed
expenses is the projected 23-percent increase in prices
paid for feed.
This year’s price increase is more widespread
among feed types than last year. Prices paid for feed
grains are again up more than 45 percent, while complete
feeds and concentrates are also up more than 25 percent.
The increase in feed grains is due mainly to higher corn
and soymeal prices. Corn accounts for 91 percent of feed
grains used for feed, and soymeal is the principal oil
crop product used as feed. At the end of 2007, corn prices
were high and they are forecast to remain above 2007 levels
throughout 2008. Soymeal prices are at record-high levels
and will remain significantly higher than in 2007.
On the quantity side, the number of grain-consuming
animal units is forecast to be up 2 percent in 2008. Cattle-on-feed
are expected to be lower each quarter in 2008 than they
were in 2007, and both net placements and total supply
should decline. However, pork production is forecast to
be up 7.0 percent and milk production is expected to increase
about 2 percent. The production of broilers should rise
more than 2 percent.
Livestock and poultry purchases are forecast to decline
$206 million (-1.1 percent) in 2008. Since cattle and
calf purchases account for more than 75 percent of this
expense, the situation in this market has the biggest
effect on livestock purchases. This market reflects a
set of countervailing factors. Prices of feeder cattle
fell in both 2006 and 2007 because drought and poor pasture
in some parts of the country resulted in cattle being
placed into feedlots. This pressure has been partially
relieved and the cattle and calf inventory has been reduced.
Further, beef production should be slightly higher in
2008, exports are expanding, and retail prices for beef
have been higher during the first half of 2008 than in
2007. However, high feed prices are affecting the profitability
of feedlots and reducing the price that they are willing
to pay for feeders. Later this year, the situation will
likely become “declining demand from cattle feeders
for increasingly scarce supplies of feeder cattle”
(Livestock,
Dairy, and Poultry Outlook, May 2008). The price for
milk cow replacements rose 6 percent in 2007 and should
remain at least level during 2008 since milk production
will increase and milk prices remain relatively high.
The annual average farm prices for hogs, broilers, and
turkeys are all forecast to be up.
The principal crop-related expenses are forecast to
be $52.4 billion, a rise of $13.7 billion (36 percent).
This increase is the largest on record, overwhelming the
$5.3-billion increase in 2007, which also was a record
high. One indicator of crop-related expenses, acres planted
of the 14 major field crops, is projected to increase
1.3 percent in 2008. Fertilizer expenses are up 175 percent
since 2002, and seed expenses have increased 72 percent
since then. In contrast, pesticide expenses have risen
only 29 percent, and most of that rise will have been
in 2007-08.
d
Seed expenses are forecast to increase $3.4 billion (28
percent) in 2008. Seed prices have been rising rapidly
since 2000 because of biotechnology advances and improved
yield potential (Crop
Production Cost and Outlook, FAPRI). Prices paid for
seeds rose 12.3 percent in 2007 and are projected to increase
27 percent in 2008. April prices for field crop seeds
were up markedly. Average prices for all corn seeds (biotech
and non-biotech) were 24 percent higher than in 2007.
The price of wheat seeds jumped even more—spring
wheat seed prices rose 244 percent from 2007.
Fertilizer expenses will probably be a greater concern
to crop farmers than fuel costs in 2008. Following a $3.4-billion
(25.5-percent) increase in 2007, fertilizer expenses are
forecast to rise $9.7 billion (58.0 percent). Increases
in fertilizer prices are driving the increase. The sharp
increases in fertilizer prices began in December 2007.
Average prices paid for fertilizer in 2008 through July
are up 62 percent over 2007 and the prices paid in July
2008 were 104 percent higher than in July 2007. Through
July, average prices paid for mixed fertilizers have risen
69 percent; for nitrogen, 44.5 percent; and for potash
and phosphate, 100 percent. These prices are not likely
to abate during the year because their rise is tied to
greater international demand for fertilizer, particularly
in India, China, and Brazil. (A fuller discussion of fertilizer
price is included in the November 2007 Amber
Waves.) With the reduction in corn acreage, fertilizer
use should decline in 2008. Multiplying forecast acreage
for principal crops and their respective per-acre application
rates yields a 1.3-percent decrease in total applications.
Also, many farmers will employ practices that reduce their
use of fertilizer, given its high price.
Pesticide expenses are forecast to increase around $700
million (7 percent). Year-to-date average prices paid
for pesticides are up 5.4 percent in 2008. The quantity
indicator in the 2008 pesticide expense forecast, acres
of major crops planted, is projected to increase 1.3 percent.
If the 2008 price increase is realized, pesticide expenses
will have risen $1.7 billion (19 percent) during the last
2 years.
Fuel and oil expenses are forecast to increase $5.1
billion (39 percent) in 2008 following a $1.7-billion
(15 percent) rise in 2007. Average prices paid for fuel
in 2008 are up 40 percent through July. The price of diesel
fuel, which is the primary fuel used in farm machinery,
has risen 45 percent. In July 2008, prices paid for fuels
and oils stood 62 percent higher than in July 2007. Like
fertilizer prices, fuel prices have risen dramatically
since 2002. Nominal annual average fuel prices have registered
6 straight double-digit percentage increases and, since
2002, are projected to have risen 230 percent through
the end of 2008. Prices paid for diesel fuel have risen
272 percent. On the quantity side, additional acreage
may increase fuel use. Electricity rates should rise more
than 5 percent and electricity expenses 7 percent in 2008.
Payments to Stakeholders (Providers of Hired Labor,
Rented Land, and Debt Capital)
Payments to stakeholders are slated to increase $2.8
billion (6.1 percent) in 2008. If realized, they will
constitute 34 percent of net value added, down slightly
from 2007. The ratio of stakeholder payments to total
expenses has been dropping since it peaked at 26.5 percent
in 1984. In 2008, this ratio should decline to 16.4 percent.
Employee compensation (hired labor) is forecast to rise
$1.3 billion (6 percent), reflecting a 4.5-percent increase
in farm wage rates and an approximately 3-percent increase
in the production of fruits and nuts, vegetables, and
greenhouse and nursery products- the three farm commodity
groups that are the heaviest users of hired labor.
Net rent to nonoperators is expected to rise $2.0 billion
(22.5 percent), reflecting an expected 13-percent rise
in average cash rents, 27-percent rise in share rent,
and 14-percent rise in landlord government payments.
Total interest expenses are forecast to drop by close
to $450 million as both real estate interest and nonreal
estate interest expenses decline. Total end-of-year debt
will be slightly higher as real estate debt is forecast
to increase by $3.9 billion (3.1 percent) and nonreal
estate debt is expected to decline by $3.1 billion (-3.0
percent). Annual average interest rates on both outstanding
real and nonreal estate farm loans are expected to decline
in 2008.
Government Payments
Forecast at $13.2 Billion
Direct government payments
are expected to total $13.2 billion in 2008, up from $11.9
billion in 2007. If realized, this level would be 19 percent
below the 5-year average for 2003-07. Payments under the
Direct Program in 2008 are forecast at $5.27 billion,
a 4-percent increase from 2007. Direct payment rates are
fixed in legislation and are not affected by the level
of program crop prices. Since 2004, there has been little
change in direct payments by crop year. The small fluctuations
across the calendar years are the result of changes in
the number of farmers receiving optional advanced payments
in December, affecting the share of the payment rolled
into the following calendar year. There was no program
authority for making advanced direct payments to 2008
crops, so there were no advanced payments made in December
2007.
Countercyclical payments are expected to decrease from
$1.2 billion in 2007 to $957 million in 2008. This follows
a large decrease in 2007. In 2006 and 2007, only upland
cotton and peanuts received payments. This is quite a
change from previous crop years, when more than half the
payments for 2004 and 2005 were to corn. Under the Food,
Conservation and Energy Act of 2008 (2008 Farm Bill),
the timing of countercyclical payments will change. For
crop years 2008 through 2010, producers will receive two
countercyclical payments—a partial payment will
be made after 180 days of the marketing year and the final
payment will be made beginning the following October.
For fiscal years 2011 and 2012, only single payments will
be made beginning in October following the end of the
marketing year.
Marketing loan benefits—including loan deficiency
payments, marketing loan gains, and certificate exchange
gains—are projected at $7 million in 2008, down
from $1.1 billion in 2007. In 2007, upland cotton producers
received almost 99 percent of total marketing loan benefits,
of which 95 percent were certificate exchange gains. In
2008, only wool, mohair, and pelts are expected to realize
marketing loan benefits because, at current price levels,
marketing loan benefits are not available to any of the
other program crops.
Forecast at $600 million in 2008, Tobacco Transition
Payment Program (TTPP) payments are expected to be almost
33 percent lower than in 2007. Payments reported here
include both CCC payments and lump-sum payments. Begun
in 2005, this program provides payments over a 10-year
period to eligible quota holders and producers of quota
tobacco. Lump sum payments to individuals are made through
agreements with third parties in return for their rights
to the 10-year TTPP payment stream. Because significant
lump-sum payments were made in 2005 and 2006, payouts
to producers are expected to continue declining in 2008
and beyond.
Conservation programs include all programs operated
by USDA’s Farm
Service Agency (FSA) and Natural
Resources Conservation Service (NRCS) that provide
direct payments to producers for conservation activities.
Estimated conservation payments of $3.15 billion in 2008
reflect funding levels authorized by current legislation.
Ad hoc and emergency program payments, forecast at almost
$3.2 billion in 2008, include all programs providing disaster
and emergency assistance to farmers. USDA started making
disaster payments in late December appropriated under
Title IX—Agricultural Assistance—of the U.S.
Troop Readiness, Veterans' Care, Katrina Recovery, and
Iraq Accountability Appropriations Act, 2007. However,
most of the expected $2.8 billion being paid to farmers
is expected to be disbursed in 2008. Section 743 of the
Consolidated Appropriations Act, 2008 further extended
the period of loss eligibility for disaster assistance
from February 28, 2007, to December 31, 2007. This is
expected to provide an additional $602 million in disaster
assistance payments to farmers in 2008.
d
2004-2008—Sustained High Earnings for U.S. Agriculture
If current commodity and input market prospects hold
for the remainder of the calendar year, 2008 will be a
record year for the value of crop and livestock production,
crop and livestock receipts, revenues from forestry and
services, total value of farm sector production, gross
value added, net value added, net farm income, and production
expenses for both purchased inputs and payments to stakeholders.
This string of records across so many components of the
farm income accounts is unparalleled in the last several
decades, and both crop/livestock operations and suppliers
of services and inputs should share in U.S. agriculture's
record economic showing.
The past 4 years have witnessed exceptional earnings
for U.S. agriculture. Including the forecast for 2008,
crop and livestock production values will each have established
new highs in three of the last five years (2004-08). Likewise,
net value added to the U.S. economy will have established
three new record highs. Net cash income has also established
multiple record highs between 2004 and 2008. The late
1980s and early 1970s were the last comparable periods
when U.S. farming enjoyed multiple years of sustained
high levels of output and income.
Even on an inflation-adjusted basis, 2008 will be an
exceptional if not record-breaking year. With income expressed
in constant dollars
(2000=100), the forecast for net value added for 2008
would be the largest economic contribution for U.S. agriculture
since 1974. Net farm income mirrors net value added, with
income (in constant dollars) trailing only 2004 as the
largest in the last three-plus decades.
| Farm Income Forecasts
Grow More Refined Over 19 Months The periodic
farm income forecasts and estimates published by
ERS over the course of a crop year (5 over a span
of 19 months) can vary markedly from one iteration
to the next. For example, the first forecast of
2007 income (in February 2007) undergoes painstaking
refinement as new information comes available. Release
dates for the updated forecasts correspond with
the availability of seasonal data and annual survey
results. For example, an August 2007 update of annual
crop values benefits from preliminary output and
yield numbers as reported by producers in the field.
Likewise, production expenses can be extrapolated
from prior-year expense data and several months
of current-year input prices. Additional refinements
in November and the following February (2008) incorporate
harvest, sales, and inventory data. Ultimately,
an August 2008 estimate of 2007 farm income is published.
Individual components of the farm income accounts
adhere to different timetables and are subject to
varying degrees of uncertainty. For instance, (crop)
inventory adjustment is a residual component of
total supply (production and beginning-of-year stocks)
and use (domestic and export). Farm household income
is contingent on many factors (amount of off-farm
work hours and wage rates) that transcend crop and
livestock numbers. Government payments—which
are a function of prices, production, eligibility
rules, and ad hoc disaster legislation—are
also hard to forecast with any certainty, and that
uncertainty compounds the margin of error that measures
like net cash income are subject to from first forecast
to final estimate.
Crop and livestock receipt forecasts tighten significantly
as additional price and output data come available
during the forecast period. As a result, by harvest
time, the relative error (between forecast and actual
totals) has generally held to less than 2 percent
for total cash income and less than 5 percent for
net farm income.
Of course, in absolute terms this can amount to
as much as $4 billion across the farm sector. |
See glossary.
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