HDR1011800200200620951500 AGRICULTURAL INCOME AND FINANCE--SUMMARY June 20, 1995 Approved by the World Agricultural Outlook Board ----------------------------------------------------------------------------- This SUMMARY is published by the Economic Research Service, U.S. Department of Agriculture, Washington, DC 20005-4788. The complete text of AGRICULTURAL INCOME AND FINANCE is available 2-3 working days following release of this summary. ----------------------------------------------------------------------------- After Near-Record in 1994, Net Farm Income To Decline in 1995 Net farm income is forecast at $38 to $48 billion in 1995, down from the $50 billion projected for 1994. The 1994 forecast challenges the all-time high of $50 billion in 1992 and reflects a record commodity inventory adjustment of $7 billion from historically large production. Net cash income is forecast to range from $48 to $58 billion in 1995, compared with $54 billion forecast for 1994. Average farm household income is expected to increase slightly in 1994 and remain steady through 1995. Cash receipts from farm marketings are projected at $176 to $184 billion in 1995, and $180 billion in 1994. Cash receipts for both years could approach record levels due to strong crop receipts bolstered by export and domestic demand. Large supplies of red meats will put downward pressure on livestock receipts through 1995. Direct government payments are forecast at $6 to $8 billion in 1995, the lowest since 1985. Government payments are expected to represent about 4 percent of gross cash income in 1994 and 1995, down from 5 percent during 1989-93. Farm production expenses are forecast at $162 to $170 billion, up slightly from the 1994 forecast of $164 billion. The stability in the 1995 expense forecast reflects the expectation that higher fertilizer expenses will be offset by lower costs of farm-origin inputs, such as feed and livestock. U.S. farm sector assets likely increased nearly 5 percent during 1994 to $930 billion, partly because farm real estate values are likely to rise more than inflation for only the second time since 1987. Asset values in 1995 are forecast at $942 to $952 billion. Farm business debt is forecast to increase more than 3 percent in 1994, slightly higher than the recent trend of modest growth in outstanding loan balances. The nominal increase in borrowing is expected to be sustained through at least another year, as total debt is forecast at $150 to $154 billion for 1995. o Compared with 1994, net cash income could decline the most on farms that specialize in red meat production. U.S. beef production could be the largest since 1977, while 1995 farm prices for cattle could be as much as 13 percent lower than the 1989-93 average. o Weather-delayed planting this spring could lead to a wide disparity in farm income for Midwest and Northern Plains farmers. Rainy spring weather may lead to some financial stress, particularly for those farmers who have not fully recovered from the 1993 floods. On the other hand, farmers with good crops may benefit from higher grain prices. o Analysis of the impacts of direct government payments on farmland values suggest that, on average, real estate values would have been no more than 14 percent lower during 1950-93 if farmers did not receive payments. Current land values anticipate lower program payments, which means further reductions will have less of an impact in the future. Over time, some producers would shift away from program crops to more profitable crop alternatives. The greatest impacts would be in the Delta, Northern Plains, and Southern Plains regions, where for many farms government payments represent at least 20 percent of gross cash income. o Despite tight credit markets facing high-risk loan applicants, lenders continue to aggressively pursue qualified borrowers, and competition for quality loans will continue to intensify in 1995. Commercial bank loans increased almost $3.5 billion in 1994 and are expected to surpass 40 percent of all debt outstanding by the end of 1995. This issue of Agricultural Income and Finance contains a special article entitled "Sources of Federal Farm Income Estimates" that outlines the varying sources of farm income data, why they yield different estimates, and when the different income sources should be used. Printed copies of Agricultural Income and Finance Situation and Outlook will be available in about a week. For more information, contact Mitch Morehart (202) 219-0100. Text of the full report also will be available electronically. For details on electronic access, call ERS Customer Service (202) 219-0515. END-END-END