AGRICULTURAL INCOME AND FINANCE -- SUMMARY September 24, 1998 September 1998, AIS-69 Approved by the World Agricultural Outlook Board ----------------------------------------------------------------------------- This SUMMARY is published by the Economic Research Service, U.S. Department of Agriculture, Washington, DC 20036-5831. The complete text of the report will be available 1-2 weeks following this summary release. ----------------------------------------------------------------------------- Farm Income Declines, But Effects Differ by Commodity Mix and Region Net farm income for 1998 is forecast at $42 billion, down $7.9 billion from last year's near record high. Net cash income is forecast to be $53 billion, down $7.8 billion from 1997 and $3.4 billion below 1996. Both net farm and net cash income earned in 1998 will be about the same as earned on average in the first half of the 1990s. The income drop reflects a decline in the value of farm production that was triggered mainly by lower prices received by farmers. Declining demand for exports and increased supplies available from competing exporting countries are major contributors to the lower prices. Despite relatively high 1997 incomes, not all farms nor all regions recorded financial progress last year. Deterioration in overall financial performance occurred in the Lake States, Northern Plains, Corn Belt, and Pacific regions. Producers of the major crops are likely to fare less well in 1998. Anticipated large harvests of soybeans, wheat, and corn, coupled with declining demand and continued strong competition in export markets, have kept downward pressure on prices through most of the summer of 1998. Even though production levels are high, cash receipts for these commodities are expected to decline. Operations in regions experiencing reduced production due to crop disease, pest infestation, or dry weather could face increasing financial difficulty, because they will likely receive lower prices for smaller crops. The value of crop production from U.S. farms in 1998 is forecast to drop $7.9 billion, led by a $3.5-billion drop in sales of feed crops, mostly corn. Price declines account for the fall in value of crop production, with the exception of cotton. Cotton prices are trending upward, as a significant drought in Texas and the Southeast is reducing per-acre yields of upland cotton. The value of livestock production is forecast to be down $2.3 billion, led by a $4.3-billion drop in sales of meat animals. Cattle and hog prices have declined recently. Prices for broilers and dairy products, however, are expected to be up in 1998. Farm business debt is anticipated to reach $172 billion by the end of 1998, the highest since 1985. The expected increase of $6.6 billion will mark the sixth consecutive year of rising farm debt. The expansion in outstanding loan balances in 1998 follows a debt rise of over $9 billion in 1997, the largest annual increase since 1980. With the value of farm assets rising slightly faster than debt, equity in the sector is expected to improve. Farmers are expected to use their available credit lines more fully in 1998. Use of farm debt repayment capacity (actual debt expressed as a percentage of maximum feasible debt) indicates that, in 1998, farmers are expected to use over 61 percent of the debt that could be supported by their current incomes. While this is the highest value this measure has attained since 1986, it is substantially below 1979-85 values, which were consistently above 70 percent. At the beginning of 1998, financial statements reported by farm businesses indicated that two out of every three farms were in a favorable financial position, a very slight decline from a year earlier. More than half of all farms continued to report no debt outstanding on January 1, 1998. Just over 4 percent of farms reported debt-to-asset ratios greater than 70 percent. On average, farm operator households earned about $52,000 in 1997, according to the most recent farm survey data from USDA. The 1998 outlook is for incomes to remain fairly stable. Off- farm income is an important source of total household income for all size farm operations, even large family farms. Printed copies of Agricultural Income and Finance Situation and Outlook Report will be available in about 2 weeks. For more information, contact Robert McElroy (202) 694-5578. Text of the full report may also be accessed on the ERS Website at http://www.econ.ag.gov. For more information on electronic access, call ERS Information Center at (202) 694-5050. END_OF_FILE