Median Farm Household Income Forecast Up in 2012 and in 2013
Projected median total farm household income is expected to increase by 1.2 percent in 2012, to $57,723, and by an additional 1.9 percent in 2013, to $58,845. Given the broad USDA definition of a farm, many farms are not profitable even in the best farm income years. Despite high prices for many crops, 2012 was no exception, with median farm income projected to be -$2,799. Most farm households earn all of their income from off-farm sources--median off-farm income is projected to increase by 3.4 percent in 2012, to $55,229 and by 3.9 percent in 2013, to $57,378.
Note: The median is the income level at which half of all households have lower incomes and half have higher incomes.
Mean (average) total farm household income is projected to increase by 2.1 percent in 2012, to $89,099, but decrease by 0.6 percent in 2013, to $88,576. The projected decrease for 2013 reflects a projected decline in net cash farm income. Farm operator households with exceptional incomes--either very high or very low--influence the mean more than the median. Because most farm income goes to a small share of farm households, the projected decline in net cash farm income for 2013 has a larger effect on mean total household income than median total income.
See more financial statistics for farm operator households for recent years.
2011 Income Varies by Farm Typology
ERS has developed a family farm typology that considers gross sales in combination with the occupational characteristics of principal farm operators (see glossary). In the ERS typology, small farms (those grossing less than $250,000 in sales) are classified into two groups based on the occupation of the farm's principal operator. If a principal operator reports being retired or having a major occupation other than farming, the farm is classified as a "residence" farm. If the principal operator of a small farm reports farming as a major occupation and is not retired from farming, their farm is classified as "intermediate." The "intermediate" label does not necessarily indicate a midsized farm; in 2011 only 53 percent of intermediate farms had gross sales more than $10,000. "Commercial" farms are classified as those with $250,000 or more in gross sales, regardless of the occupational characteristics of the principal operator.
In contrast to the general farm household population, households associated with commercial farms derive the majority of their income from farming activities (see table on principal farm operator household finances, by ERS farm typology, 2011 ). Their median income from farming increased by 7.9 percent in 2011 to $84,649, and their total household income also increased by 7.9 percent, to $127,009. (Income forecasts by farm typology are not yet available for 2012 and 2013.) Households associated with intermediate farms also saw a substantial increase (6.4 percent) in total income, to $45,889, but the increase came from higher off-farm income. Residence farm households saw a more modest 2.2-percent increase in income in 2011, also from higher off-farm income.
The slight decrease in farm income among intermediate farms households combined with the large increase for commercial farm households explains why median farm income for the entire farm household population decreased while mean farm income increased in 2011. Most farm income is concentrated in households associated with commercial farms, which represent 10.3 percent of the farm population. Consequently, their farm income tends to influence mean farm income more than median farm income.
Details on farm operator household incomes are grouped by:
See the glossary for definitions of terms.
Size of Farm Determines Primary Source of Household Income
While the number of U.S. family farms has been relatively stable for the past decade (see table on family and nonfamily farms, by farm size class (gross sales), 1996-2011 ), the roughly 2.1 million family farms vary significantly in farm sales, as do the level and sources of household income of their principal operators. In 2011, the majority of family farms (60 percent) had gross sales of less than $10,000 (see table on characteristics of principal farm operator households, by gross farm sales, 2011 ). These very small farms had negative average farm incomes, typically receiving all of their household income from off-farm sources. On average, they received more than $77,000 in income from off-farm sources in 2011, which is more than family farm households operating larger farms typically received.
Family farms with gross sales of $10,000 to $249,999 represented 30 percent of family farms in 2011. Though still considered to be small farms, the households operating these farms earned, on average, positive returns from their operations. They earned less from off-farm sources compared to households operating the very smallest farms, but with their positive farm earnings, they had higher total household incomes than those operating the smallest farms in 2011. Their average (mean) household income was $79,780 in 2011.
Ten percent of family farms in 2011 were considered to be commercial farms, grossing $250,000 or more. While receiving less in off-farm income than those operating small farms, commercial family farm households earned significantly more on the farms they operated. As a result, they had average household incomes more than twice the level of smaller farm households. The average household income of farm families operating commercial farms was $205,215 in 2011.
A farm's specialization is determined by the one commodity or group of commodities that makes up at least 50 percent of the farm's total value of agricultural production (see glossary).
In any given year, production and market conditions will vary for farms that specialize in different commodities. Differences in household income across commodity specialization, however, may also stem from basic differences in the types of households that engage in the production of specific commodities. For example, with its large and consistent time demands, managing a dairy farm rarely permits an operator to work many hours off-farm and is a main reason why farm income is a large share of total income for dairy farm households but not for households involved in many other commodities. Consequently, people with a high paying off-farm job, or the potential to obtain one, are more likely to specialize in an activity that, unlike dairy farming, readily permits working many hours off the farm.
High prices for field crops have led to strong farm incomes for households specializing in those crops. In 2011, households associated with farms specializing in cash grains such as corn or soybeans had a median household income of $76,301. Only households with hog farms had a higher median income, but their incomes reflect high off-farm income. Except for dairy, households with livestock farms typically show modest or negative income from farming activities. In 2011, the typical household with a beef cattle, poultry, or general livestock farm experienced a loss from farming.
Farm Operators' Household Income Compared With U.S. Household Income
Since the 1980s, ERS has reported an income measure for farm operator households comparable to the U.S. Census Bureau's measure for all U.S. households. (The income measure is, generally, money income except farm depreciation is included as an expense. See glossary for more details.) Median total farm household income exceeded the median U.S. household income in every year since 1998. However, the gap between farm and U.S. household income has varied, increasing through the early 2000s, then decreasing for 3 straight years (2006-08) before increasing again in the last 3 years.
Households with very high incomes influence the mean or average more than the median and is one reason why the two measures differ a lot when applied to the farm household population, which contains some very high-income households. Another reason for the difference is that the broad definition of a farm causes many establishments with little or no agricultural production to be included in the farm population. Because small farms are so numerous, the median tends to reflect their situation, which is often quite different from that of farms with substantial agricultural production.
In the last 10 years the gap between mean farm household income and mean U.S. household income has widened more than the gap in median incomes. In 2011, median farm operator household income exceeded median U.S. household income by 14.0 percent ($57,050 compared to $50,054). In the same year, mean farm household income was 25.4 percent higher than mean U.S. household income.
A series that compares the disposable personal incomes (see the glossary for definition of this term) of farm and nonfarm residents from 1934 to 1983 (see figure) shows that, in contrast to recent years, mean (average) U.S. household income exceeded that of farm households for most of the previous century (see historic data on mean and median farm operator household income and ratio of farm household to U.S. household income, 1960-2011 ).
Composition of Off-Farm Income
The median farm operator household consistently incurs a net loss from farming activities, which means that most farm operator households rely on off-farm income to sustain them. Of the total off-farm income earned by farm operator households, the majority comes from wages and salaries, followed by transfers (e.g., Social Security) and nonfarm businesses.
The share of total off-farm income from one source does not reveal how common it is for a household to receive some income from that source. Much of the nonfarm business income, for example, may be concentrated in a relatively few households. Although income from interest and dividends represents a small share of total off-farm income, it is a very common source of income. Similarly, more than half of all farm households receive transfer payments.