AGRICULTURAL INCOME AND FINANCE--SUMMARY September 18, 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. ----------------------------------------------------------------------------- Farm Income for 1995 Forecast Near 5-Year Average Farm income in 1995 is forecast to range between $40 and $50 billion, close to the 1990-94 average. With a smaller harvest prompting higher prices, crop receipts could surpass the 1994 record. In contrast, livestock receipts may be lower than the previous 5-year average, as large red meat supplies pressure prices downward. Because of higher 1995 grain prices, government payments--forecast at $5-7 billion, could be the lowest for any year in the 1990's. Overall farm sector profitability and solvency should be stable. Final Estimates Completed for 1994 Show Net Farm Income Up 11 Percent Final estimates just released put 1994 net farm income at $46.7 billion, up $4.7 billion from 1993. The 1994 estimate is $3 billion below July's forecast, due primarily to higher reported expenses and revised forest product receipts. The estimate, developed from survey and other data collected throughout 1994, also shows that economic gains from 1994's record crops were partially offset by lower harvest prices. By contrast, 1994 net cash income decreased $8.3 billion from 1993. Gross cash income, at $196.7 billion, was $2.9 billion lower than in 1993. Although total farm marketings increased $2.5 billion, the increase was more than offset by a $5.5-billion reduction in direct government payments and a $5.4-billion rise in cash expenses. Government payments for 1994 were the lowest in a decade. An $8.7-billion rise in the value of inventories held by farmers accounts for much of the difference between rising net farm income (which includes value of inventory changes) and the declining net cash income. Production agriculture's net value added rose by $5.8 billion in 1994. The sector's strong economic performance reflected a $17.3-billion increase in the value of crop output. Most crop producers benefited from near perfect growing conditions throughout the 1994 cropping season. Total farm business debt rose almost $5.0 billion during 1994 to nearly $147 billion, the highest since 1986. Farmers' borrowing increased in the same year that net cash income available to service debt decreased. Even so, the growth in farm borrowing does not appear to place an unmanageable burden on the sector's ability to repay. Production costs also increased in 1994, with rising input prices pushing up costs for U.S. crop and milk producers. Prices paid for production inputs in 1994 rose an average 2.9 percent from 1993. The greatest increase was for fertilizer, up almost 10 percent. Cash rents rose an average 8 percent and machinery prices advanced 3-6 percent. Livestock operations were most affected by an average 6-percent rise in feed prices. The rise in feed prices was primarily due to high prices in the first three quarters of 1994 following the drought- and flood-damaged crops of 1993. The total cash cost per acre of corn planted was 11 percent higher in 1994 than in 1993, while the economic (full ownership) cost was 12 percent higher. But higher yields reduced the cash cost per bushel from $1.79 to $1.38, and the economic cost per bushel from $2.89 to $2.24. Lower corn prices also raised the per acre deficiency payment from 1993 to 1994. The total economic cost per acre of soybeans planted was 7 percent higher in 1994 than in 1993, while the per acre cash cost was 5 percent higher. However, the costs per bushel were much lower in 1994 due to improved yields. Wheat production costs changed little in 1994. Hog producers faced higher feed costs and lower sales prices. For dairy farmers, feed costs also rose but higher milk prices generated higher cash returns. Production costs of cow-calf operations showed little change in 1994, but with cattle and calf prices down nearly 10 percent, net returns fell. Special articles in this issue of Agricultural Income and Finance discuss revisions in estimating sugar beet and sugarcane production costs, provide a reconciliation between the Commerce Department's Farm National Income and USDA's Farm Sector Accounts, and explain the procedure for accounting for use of capital goods that have a multi-year service life. Printed copies of Agricultural Income and Finance Situation and Outlook will be available in about a week. For more information, contact Dave Peacock (202) 219-0805 or DPEACOCK@econ.ag.gov. 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