Farm Financial Picture Looks Promising for 2003
The 2003 financial picture looks promising for most U.S. farmers and ranchers, the major exception being the dairy sector. Overall, the value of livestock production is forecast to increase by $3 billion from 2002, but remain below 2001's record level. The cattle market continues to be bolstered by strong demand and dwindling beef supplies, though some producers are still feeling pressure from drought conditions. Farm prices for pork and poultry are also expected to rebound in 2003. Dairy farms, on the other hand, should continue to experience the tough conditions that prevailed during 2002 when milk prices reached a 20-year low.
Expanding acreage and a return to trend yields should help strengthen crop production in 2003. Wheat and oilseed receipts are expected to show the strongest gains, while the outlook for cotton and rice is also encouraging. Corn and tobacco receipts, however, are forecast below 2001 levels. Total 2003 U.S. crop receipts are forecast at $101.6 billion, the highest level in 5 years.
Signups for programs in the 2002 farm bill were much slower than anticipated. As a result, farmers will receive the bulk of 2002 direct and counter-cyclical payments in calendar year 2003.
Value Added by Agriculture Forecast Up, Near 2001 Level
The outlook for commodity market receipts, production expenses, and government payments translates into a net value added to the U.S. economy in 2003 of about $91 billion, nearly equal to the level attained in 2001, before falling more than $14 billion in 2002. 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 $46 billion as a return on their contribution to production agriculture. The remainder, $44.9 billion, is referred to as net farm income and represents the farm operator's share of income from the sector's production activities.
Total production expenses in 2003 are forecast to rise by $7.5 billion (3.8 percent), the largest increase since 1997, but similar to the increase in 2001. Input expenses are projected to rise between 4 and 6 percent in 2003, with the largest increase forecast for fertilizer expenses (9 percent), due primarily to higher prices. The only production expense that will fall in 2003 will be interest, with little if any change anticipated in farm loan interest rates.
Farm Income Forecast Up For Most Producers
Net cash income represents funds that are available to farm operators to meet family living expenses and make debt payments. Excluded from net farm income is 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. Net cash income is projected to increase $5 billion from 2002 to 2003, but remain below the 2001 level of $59.7 billion. In late January 2003, however, the Senate passed legislation providing an estimated $3.1 billion in additional payments to producers who experienced losses from disaster in 2001 and 2002. The final details of the relief package are subject to conference with the House and approval by the President. This proposed funding would provide additional income to a wide range of producers. Most of the spending is targeted to current farm program participants who, if eligible, would receive payments equivalent to 42 percent of a producer's fixed payments under the 2002 farm bill. The legislation also proposes funding for fruit and vegetable, sugar, and livestock producers who suffered disaster losses in 2001 and 2002.
Projected changes in net cash income in 2003 vary by size of farming operation. The 60 percent of U.S. farms classified as rural residences typically rely on off-farm income for meeting household financial needs. These small farming operations reported negative net cash income in 2001, and are likely to experience similar losses from farming in 2002 and 2003. In contrast, commercial farms, which have annual sales greater than $250,000 and depend much more on farming as a source of household income, are expected to see higher net cash incomes on average in 2003. Intermediate farms—farms with yearly sales under $250,000 whose operators report farming as their primary occupation—will likely have the largest relative increase in net cash income from 2002 to 2003.
Three distinct income patterns emerge over 2002-2003 for crop producers. The most favorable pattern—where income declined in 2002, but rebounds in 2003 to levels higher than 2001—is forecast for producers of specialty crops, wheat, soybeans, and other field crops. The most substantial gains are expected for wheat farms. General cash grain and corn farms will likely experience a less favorable pattern in which average income in 2003 recovers from 2002 but only to the 2001 level. The least favorable pattern, with income increasing in 2003 over 2002, but remaining below 2001 levels, is forecast for tobacco, cotton, and peanut producers.
Income outlooks also vary for livestock producers. The combination of both lower receipts and higher expenses will likely reduce the average income of dairy farms in 2003 to below the 2002 level. Hog farms will do a little better, with average net cash income expected to increase in 2003, but remain below levels of 2001. Beef and poultry producers are expected to do even better; after declining in 2002, average incomes in 2003 are forecast to recover to near 2001 levels.
Projected changes in income among geographic regions correspond with the farm types and the mix of commodities existing in each region. Most regions are expected to experience an increase in average net cash income for 2003, though not enough to reach 2001 levels.
Average farm household income is forecast at $65,095 for 2003, up 4 percent from 2002. In both 2002 and 2003, income from farm sources is having a much larger influence on expected farm household income levels than in 2001, due to weaker labor markets. Although the general U.S. economy appears to be strengthening, labor markets—the primary provider of off-farm sources of farm household income—tend to trail the general economy during periods of recovery. The current outlook suggests only a modest increase in 2003 in farm household income from off-farm sources.
Despite several years of weak commodity prices, owning a farming operation has been an important wealth-building tool for many farm operator households. The average value of farm assets on family farms is expected to approach $567,000 in 2003, and, with reported farm debt of less than $70,000, the calculated average net worth of family farm businesses is expected to approach $497,000. While intermediate and rural residence farm households rely on off-farm sources for the bulk of their income, the farm asset and net worth bases of these households account for much of their accumulated wealth.
Farm Sector Income & Finances, by Farm Income Team, USDA, Economic Research Service, February 2023