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Farm sector real estate debt trends vary by lender

Friday, July 29, 2016

Since the late 1970s, the Farm Credit System (FCS) has been the largest U.S. lender to the farm sector for loans secured by real estate. The trend in outstanding real estate debt held by FCS closely tracks the overall sector real estate debt trend. Debt held by FCS peaked in the early 1980s and then declined for the next decade before increasing to an inflation-adjusted high of $81.7 billion in 2014. Prior to the 1990s, commercial banks held substantially less debt than the FCS. However, farm sector real estate debt held by commercial banks has increased sharply since the 1990s, leading commercial banks to become the second most prominent farm real estate lender. Farmer Mac, though small relative to FCS and commercial banks, has also shown growth in real estate debt outstanding during the period. While the real estate debt outstanding at FCS, commercial banks, and Farmer Mac has grown sharply since the 1990s, the trend has held relatively flat or declined modestly for the other lenders in that period. This chart is found in the July 2016 Amber Waves article, “Trends in Farm Sector Debt Vary by Type of Debt and Lender.”

Most U.S. farm estates exempt from Federal estate tax in 2015

Monday, June 20, 2016

The Federal estate tax applies to the transfer of property at death. Under present law, the estate of a decedent who, at death, owns assets in excess of the estate-tax exemption amount ($5.43 million in 2015) must file a Federal estate-tax return. However, only those returns that have a taxable estate above the exempt amount (after deductions for expenses, debts, and bequests to a surviving spouse or charity) are subject to tax at a graduated rate, up to a current maximum of 40 percent. Based on simulations using farm-level survey data from USDA’s 2014 Agricultural Resource Management Survey (ARMS), about 3 percent of farm estates would have been required to file an estate tax return in 2015, while 0.8 percent of all farm estates would have owed any Federal estate tax. This chart is based on the ERS topic page on Federal Estate Taxes.

Share of highly leveraged farm businesses on an upward trend since 2012

Tuesday, April 26, 2016

Farm businesses—those farms with at least $350,000 in annual sales or farms with lower revenues where the operator’s primary occupation is farming—account for more than 90 percent of U.S. farm sector production, and hold 71 percent of all farm assets and 80 percent of farm debt, according to USDA’s 2014 Agricultural Resource Management Survey (ARMS). Debt-to-asset (D/A) ratios measure the amount of assets that are financed by debt, and are an indicator of the level of a farm’s solvency. The share of farm businesses that are highly leveraged (defined as having debt-to-asset ratios greater than .40) has trended upward since 2012 and is forecast to increase slightly in both 2015 and 2016. Farm businesses specializing in crops are forecast to have higher shares of both highly and very highly leveraged operations (with over .70 D/A ratios) than those specializing in animals/animal products. In 2016, the share of very highly leveraged crop farms is expected to reach the highest level since 2002. Because lending institutions consider D/A (along with other measures reflecting the chance of default) to assess credit worthiness of farms, some of these highly and very highly leveraged farm businesses may have difficulty securing a loan. This chart updates one found in the ERS report, Debt Use by U.S. Farm Businesses, 1992-2011, April 2014.

Taxable U.S. net income from farming remained negative in 2013

Thursday, April 14, 2016

U.S. farm households generally receive income from both farm and off-farm activities, and for many, off-farm income largely determines the household’s income-tax liability. Since 1980, farm sole proprietors, in aggregate, have reported negative net farm income for tax purposes. From 1998 to 2008, both the share of farm sole proprietors reporting losses and the total amount of losses reported generally increased, due in part to deduction allowances for capital expenses. Since 2007, strong commodity prices bolstered farm-sector profits and the net losses from farming declined, leading to a peak in taxable profits (though still a negative taxable amount on net) in 2012. In 2013, the latest year for which complete tax data are available, U.S. Internal Revenue Service data showed that nearly 68 percent of farm sole proprietors reported a farm loss, totaling $25 billion. The remaining farms reported profits totaling $17 billion. This chart is found on the ERS Federal Tax Issues topic page, updated April 2016.

Lower U.S. farm sector income and higher debt-to-asset ratios are forecast for 2016

Monday, March 14, 2016

National net farm income, along with the farm-sector debt-to-asset ratio (which is a measure of solvency), provide indicators of the economic well-being of the U.S. farm sector. As of February 9, 2016, U.S. net farm income is forecast to fall to $54.8 billion in 2016 after recently peaking in 2013, due largely to declines in commodity prices. In inflation-adjusted terms, since 1970 only 5 years have registered lower net farm income. With the exception of 2002, all of those years were in the early 1980s, a time of great farm financial stress. The sector’s debt-to-asset ratio has edged up the past several years but at 13.2 percent remains well below the ratio’s 1985 peak. Recent inflation-adjusted debt levels are near, but have not exceeded, early 1980s levels. Thus, the improvement in farm-sector solvency has hinged on farm-sector asset values, which have roughly doubled since 1985 in inflation-adjusted terms. About 80 percent of the value of farm-sector assets are attributable to farm real estate, and both farm real-estate and nonreal-estate assets are expected to experience modest declines in 2015 and 2016. This chart is based on data found in Farm Income and Wealth Statistics, released February 2016.

Household income from farming varies by farm business type

Friday, February 19, 2016

On average, households associated with farm businesses supplement farm income with income from off-farm sources. However, across different types of farm operations, the extent that off-farm income supplements farm income varies considerably. For example, with its extensive and ongoing time demands, managing a dairy farm rarely permits an operator to work many hours off-farm and is a main reason why farm income constitutes over four-fifths of these households’ total income. In 2014, households with farm businesses specializing in dairy and hogs had the highest average total household income (combining income from farm and off-farm sources), and the highest shares of household income derived from farming, followed by farms specializing in cash grains (corn, soybeans, sorghum, or wheat). Farm households with businesses specializing in beef cattle, other field crops, and poultry had the largest shares of average household income derived from off-farm activities. This chart is a variation of one found in the Farm Household Well-being topic page, and based on data available in ARMS Farm Financial and Crop Production Practices.

U.S. net farm income forecast to decline for third consecutive year in 2016

Tuesday, February 9, 2016

Net cash farm income and net farm income are two popular, but distinct, measures of farm sector profitability. The first measure tracks cash receipts and cash expenses, while the second also includes noncash transactions, including implicit rents, changes in inventories, capital replacement costs, and others. Following several years of high income, both measures have trended downward since 2013. ERS forecasts that net cash farm and net farm income for 2016 will be $90.9 billion and $54.8 billion, respectively, or $81.1 billion and $48.9 billion, respectively, in inflation-adjusted dollars. These amounts are below their respective 10-year average, in both nominal and inflation-adjusted terms. Before recent dips, the 10-year averages for both income measures have largely trended upward. Over the 2010 to 2013 period, surging crop and animal (including animal-product) cash receipts led net cash farm income and net farm income higher. Prices are expected to have declined for a broad set of agricultural commodities in 2015, and fall further in 2016. Production expenses are forecast to contract in 2016, but not enough to offset the commodity price declines. Find additional information and analysis in ERS’ Farm Sector Income and Finances topic page, released February 9, 2016.

Editor's Pick 2015, #4:<br>Non-operating landlords own 31 percent of U.S. farmland

Monday, December 28, 2015

Of the 911 million acres of land in farms, 61 percent is operated by the land owner, according to the 2014 Tenure Ownership and Transition of Agricultural Land (TOTAL) survey. Another 8 percent (70 million acres) of land in farms is rented from other farm operators. The remaining land in farms (31 percent or 283 million acres) is rented from “non-operating landlords,” or landlord entities that are not currently farmer operators. The majority of acres owned by these non-operating landlords is held by individuals or in partnerships (191 million acres or 21 percent of land in farms). Corporations, trusts, or other ownership arrangements also rent out 92 million acres (about 10 percent of land in farms) to operators. Even though some agricultural land is owned by non-operating landlords, many of these landlords have prior farming experience. Of the 191 million acres owned in individual or partnership arrangements, nearly half were held by a retired farmer or rancher in 2014. Six percent of the acres owned in individual and partnership arrangements by non-operating landlord entities had a principal landlord that reported spending greater than 50 percent of their work time in farm or ranch work, but not as a farm operator. More information can be found on the ERS Land Use, Land Value & Tenure topic page.

Decline in 2015 forecast for U.S. net cash farm income reflects lower receipts for livestock, crops

Tuesday, December 22, 2015

U.S. net cash farm income (NCFI)—the funds available to farm operators to meet family living expenses and pay down debt—is forecast to decline in 2015. This would be the second consecutive year of decline for NCFI, after reaching recent highs in 2012 and 2013. NCFI is expected to drop by $35.6 billion (28 percent) to $93 billion in 2015. If realized, the 2015 forecast would be the lowest since 2009, and $14.7 billion (in real terms) below the previous 10-year average. The drop in NCFI reflects a broad decline in commodity receipts. Crop receipts are expected to decrease by $18.2 billion from 2014, led by projected declines in receipts for corn ($8.6 billion) and soybeans ($5.7 billion). Livestock receipts are expected to decline by $25.4 billion, with the largest decreases in receipts expected for dairy ($13.9 billion), hogs ($6.6 billion), and broilers ($4.4 billion). Partially offsetting reduced cash receipts, total cash expenses are forecast to decrease by $7.9 billion in 2015, the first decline since 2009. Government payments are also projected to rise 10 percent ($1.0 billion) to $10.8 billion in 2015. This chart is based on information found in the 2015 Farm Sector Income Forecast, released November 24, 2015.

U.S. farm sector profitability expected to weaken in 2015

Tuesday, November 24, 2015

U.S. net farm income—a measure of the sector’s profitability—is forecast to be $55.9 billion in 2015, down 38 percent from 2014’s estimate of $90.4 billion. If realized, the 2015 forecast for net farm income would be the lowest since 2002 (in both real and nominal terms) and a drop of 55 percent from the recent high of $123.3 billion in 2013. Lower crop receipts (declining by $18.2 billion) and livestock receipts (declining by $25.4 billion) are the main drivers of the change, as total production expenses are projected down by 2 percent ($7.7 billion) and government payments are forecast to increase about 10 percent ($1.0 billion) in 2015. Net cash income is forecast at $93.0 billion, down about 28 percent from the 2014 estimate. Net cash income is projected to decline less than net farm income primarily because it reflects the sale of carryover stocks from 2014. This chart is found in 2015 Farm Sector Income Forecast, released November 24, 2015.

Net farm income and net cash income forecast below their 10-year moving averages for first time since 2009

Thursday, October 1, 2015

Net farm income and net cash income are two key measures of farm sector profitability. Following several years of high income, both have trended downward since peaking in 2013. ERS forecasts that both net cash and net farm income for 2015 will be below their 10-year moving averages in inflation-adjusted terms for the first time since 2009. Before falling in 2014 and 2015, both income measures had largely trended upward since 2009. Over the 2010 to 2013 period, surging crop, animal, and animal product cash receipts outpaced the growth in production expenses, leading net cash and net farm incomes (and their 10-year moving averages) higher. However, commodity receipts are forecast to fall sharply in 2015. Production expenses are also forecast to contract in 2015 after several years of growth, but not enough to offset the decline in commodity receipts. This chart is based on data found in Farm Income and Wealth Statistics, updated August 25, 2015.

Median income of farm operator households expected to dip in 2015

Tuesday, September 8, 2015

The median total income of farm households has increased steadily over the past 5 years (in both nominal and inflation-adjusted terms), peaking at an estimated $80,620 in 2014. However, it is forecast to decrease slightly in 2015, to $79,287. Households with commercial farms—operations which earn at least $350,000 in gross cash farm income—derive roughly three-fourths of their income from farming. Conversely, off-farm income contributes substantially to the total income of many farm households, especially those with smaller farms or a primary occupation other than farming. Farm households, on average, derive roughly 60 percent of their off-farm income from wages, salaries, and operating other businesses, while the remaining portion comes mostly from interest, dividends, and private and public transfer payments. Farm household median income remains higher than the median income of U.S. households, which was $51,939 in 2013 (the latest figure available). This chart is based on the Farm Household Well-Being Topic Page.

Non-operating landlords own 31 percent of U.S. farmland

Tuesday, September 1, 2015

Of the 911 million acres of land in farms in the continental U.S., 61 percent is operated by the land owner, according to the 2014 Tenure Ownership and Transition of Agricultural Land (TOTAL) survey. Another 8 percent (70 million acres) of land in farms is rented from other farm operators. The remaining land in farms (31 percent or 283 million acres) is rented from “non-operating landlords”, or landlord entities that are not currently farmer operators. The majority of acres owned by these non-operating landlords is held by individuals or in partnerships (191 million acres or 21 percent of land in farms). Corporations, trusts, or other ownership arrangements also rent out 92 million acres (about 10 percent of land in farms) to operators. Even though some agricultural land is owned by non-operating landlords, many of these landlords have prior farming experience. Of the 191 million acres owned in non-operator individual or partnership arrangements, nearly half were held by a retired farmer or rancher in 2014. About 6 percent of the acres owned in individual and partnership arrangements by non-operating landlord entities had a principal landlord that reported spending greater than 50 percent of their work time in farm or ranch work, but not as a farm operator. More information can be found on the ERS Farmland Ownership and Tenure topic page.

Growth in average U.S. farm real estate value slows

Friday, August 28, 2015

With a value of $2.38 trillion, farm real estate (land and structures) accounted for 81 percent of the total value of U.S. farm sector assets in 2014. Because it comprises such a significant portion of the U.S. farm sector’s asset base, change in the value of farm real estate is a critical barometer of the farm sector's financial performance. On average, U.S. (excluding Alaska and Hawaii) farm real estate values increased 2.4 percent (in nominal terms) to $3,020 per acre over the 12 months ending June 1, 2015. Growth in average values has slowed substantially relative to the previous three year mid-year to mid-year periods, when nominal farm real estate values increased over 8 percent annually. National averages mask wide regional variation. Based on nominal values, farm real estate in the Southern Plains and Pacific regions experienced the highest rates of appreciation of 6.1 percent and 5.8 percent (to $1,900 and $4,780 per acre), respectively, over the 12 months ending June 1, 2015. In contrast, farm real estate in the Corn Belt declined 0.3 percent (to $6,350 per acre). This chart is found on the ERS topic page on Land Use, Land Value & Tenure, updated August 2015.

Reduced livestock receipts are largest contributor to the forecast decline in U.S. farm income for 2015

Tuesday, August 25, 2015

Net farm income (NFI) is forecast to decline for the second consecutive year, after reaching recent historic highs in 2013. NFI is expected to fall nearly $33 billion (36 percent) from 2014’s estimate to $58.3 billion in 2015. The 2015 forecast would be the lowest since 2010, and $29.1 billion (in real terms) below the 10-year average. Crop receipts are expected to decrease by $12.9 billion from 2014, led by a projected $7.1 billion decline in corn receipts and a $3.4 billion decline in soybean receipts. Livestock receipts are also expected to decline, with the largest decreases expected for hog and dairy receipts. Total production expenses are forecast to fall by $1.5 billion in 2015, the first decline since 2009. Government payments are projected to rise 16 percent ($1.6 billion) to $11.4 billion in 2015. This chart is based on information found in the 2015 Farm Sector Income Forecast, updated August 25, 2015.

Median income of farm households exceeds that of U.S. households

Tuesday, July 14, 2015

Since USDA’s Agricultural Resource Management Survey began collecting data in 1996, the median income of farm households has risen while real U.S. median household income has remained essentially flat. This may be due to a variety of factors, including farm consolidation, increasing commodity prices, and minimal increases in hourly wages for all U.S. workers. In 2013, the median household income of farm households was about $72,000, compared with $52,000 for all U.S. households. Farm households benefitted from high commodity prices in 2012 and 2013; however, many farm households experience considerable variability in their income from year-to-year compared with their non-farm counterparts. The share of farm household income from farming (shown in the green bars) varies, accounting for as little as 5 percent in the early 2000s and reaching a high of 24 percent in 2013. The importance of farm income to households also varies with the size of the operation. Households with smaller and intermediate size farms typically receive the majority of their income from off-farm sources, while large (commercial) farm households derive the bulk of total household income from their farm activities. The most recent ERS farm sector income forecast shows farm sector income for 2014 and 2015 returning to pre-2012 levels. Households operating large farms are the most vulnerable to decreases in farm income. This chart is based on data found in Farm Household Income and Characteristics and information found in the Farm Household Well-being topic page.

Profitability varies by farm size

Friday, July 10, 2015

Profitability—measured here by the rate of return on assets (RRA)—is strongly associated with farm size. Seventy-nine to 86 percent of retirement, off-farm occupation, and low-sales farms are in the "red zone" (farms with an RRA of less than 1 percent), indicating a very low return to farming. The share of farms in the red zone drops rapidly for the remaining family farm types, those with moderate sales and higher. Likewise, the share of farms in the green zone—with a RRA greater than 5 percent—increases with farm size. Larger farms can often use their resources more productively than smaller farms, generating more dollars of sales per unit of capital. Given the high share of small farms in the red zone, many operators stay in business by undervaluing their labor, effectively ignoring the value of the unpaid labor they provide. Such small-farm households typically receive substantial off-farm income and do not rely primarily on their farms for their livelihood, often using off-farm income to cover farm expenses and make investments in their farm operations. This chart is found on the ERS topic page, Farm Structure and Organization, updated July 2015.

Composition of production expenses varies by farm commodity specialization

Friday, June 19, 2015

The variation in the percent of total expenses represented by individual expenses across different types of farms reflects how specialized U.S. agriculture has become. While wide differences generally exist between crop and livestock farms, USDA’s Agricultural Resource Management Survey (ARMS) allows a breakdown of expense shares within the major farm types. Livestock purchases are the largest component of total expenses for beef cattle farms, primarily because of the relatively high cost of feeder steers. Because of the lower cost of their animal purchases, feed expenses are the largest component of total expenses for other animal farms (primarily hog, poultry, and dairy). Specialty crop farms (fruit/nuts, vegetables, and nursery/greenhouse) have a higher share of labor expenses than field crop farms, because they occupy fewer acres and are less mechanized. In contrast, field crop farms, especially corn farms, have higher shares of expenses going to principal crop-related expenses (fertilizer, seeds, and chemicals), and rent. Fuel expenses are relatively consistent, varying between 3 percent of total expenses for other animal farms to 8 percent for other field crop farms. This chart is based on results from USDA’s ARMS Farm Financial and Crop Production Practices data.

Estate tax liability varies by farm size

Thursday, June 11, 2015

Since 1916, the Federal estate tax has been applied to the transfer of property at death. Under present law, the estate of a decedent, who at death owned assets in excess of the estate tax exemption amount ($5.43 million in 2015), must file a Federal estate tax return; those estates are subject to a 40 percent tax rate on the nonexempt amount. Based on simulations using farm-level survey data from the 2013 Agricultural Resource Management Survey (ARMS), for the 2014 tax year an estimated 2.7 percent of farm estates would be required to file an estate tax return, with a much smaller share of estates (about 0.8 percent) owing any Federal estate tax. On average, a farm estate that owed Federal estate tax had net worth of $11.1 million and a tax liability of $1.68 million, paying an average tax rate of 15 percent. Estates of small family farms (those with gross cash farm income (GCFI) below $350,000) faced the lowest average effective tax rate, while estates of large-scale family farms (those with GCFI of $1 million or more) were taxed at an average effective rate of 18 percent. This chart is found on the ERS topic page on Federal Estate Taxes, updated May 2015.

Taxable net farm income increased in 2012, but was still negative

Wednesday, April 15, 2015

U.S. farm households generally receive income from both farm and off-farm activities, and for many, off-farm income largely determines the household’s income tax liability. Since 1980, farm sole proprietors, in aggregate, have reported negative net farm income for tax purposes. Over the 1998-2008 period, both the share of farm sole proprietors reporting losses and the amount of losses reported generally increased, due in part to deduction allowances for capital expenses. Since 2007, strong commodity prices have bolstered farm sector profits and the net losses from farming have declined. In 2012, the latest year for which complete data are available, U.S. Internal Revenue Service data showed that nearly 70 percent of farm sole proprietors reported a farm loss, totaling almost $24 billion. The remaining farms reported profits totaling $18.2 billion. This chart updates the chart found in the February 2013 Amber Waves feature, “Federal Income Tax Reform and the Potential Effects on Farm Households.”

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