AGRICULTURAL INCOME AND FINANCE -- SUMMARY September 23, 1999 September 1999, ERS-AIS-72 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 electronically about 1 week following this summary release. --------------------------------------------------------------------------- U.S. Farm Income To Decline This Year With low commodity prices, 1999 net farm income, forecast at $43.5 billion, will fall below the revised estimate for 1998 of $44.1 billion. Direct government payments, an important component of farm income this year, are forecast at $15.5 billion, second only to 1987's high of $16.7 billion. Loan deficiency payments are forecast at $5.6 billion and account for the large increase in payments over 1998. Reductions in 1999 income will fall most heavily on farms that specialize in soybeans, corn, and hogs. Net cash income is projected to drop more than 20 percent from a year earlier on soybean farms. Hog and corn farms are close behind with declines of 18 and 17 percent, respectively. Some farm types will likely see income increase or remain relatively flat during 1999, reminding us of the dynamic status of the U.S. farm economy. Farms that specialize in beef cattle should on average realize income increases of 13 percent from 1998. Poultry and dairy farms are expected to have smaller increases. Cash-flow problems for farm businesses in 1999 are expected to be most pervasive in three regions of the country -- the Heartland, Mississippi Portal, and Southern Seaboard.1/ Given continued low prices for corn and soybeans, average net cash income in the Heartland is expected to be 13 percent lower than in 1998. Nearly 20 percent of farm businesses in this region may not earn enough income to cover expenses, compared with 14 percent in 1998. With a 13- percent decline in average net cash income between 1998 and 1999, 23 percent of farm businesses in the Mississippi Portal region are not expected to cover cash expenses. In the Southern Seaboard region, low prices for tobacco, cotton, and soybeans are expected to reduce average net cash income 7 percent. 1/ ERS has constructed a new set of regions to depict the geographic specialization in the production of U.S. farm commodities. The new regions replace the former Farm Production Regions, which delineated production areas along State boundaries. For more information and a map of the new regions, go to http://www.econ.ag.gov/whatsnew/issues/regions/. Many farmers will use additional government payments to reduce financial exposure by paying down debt. Farm debt is expected to stabilize in 1999 at $172 billion, following increases of 6 percent in 1997 and 4.5 percent in 1998. While the recent rise in debt may cause additional financial difficulty for some farms, it does not indicate widespread financial distress in the farm sector. Nevertheless, farmers are expected to use nearly 60 percent of the debt that can be supported by 1999 income. This would be the highest since 1986, but it remains substantially below 1979- 85 when farmers used more than 70 percent of their debt repayment capacity. Despite the increase in debt in recent years, farm business balance sheets have shown steady improvement throughout the 1990's, especially since 1992. Debt-to-asset ratios have improved, as the 23-percent increase in farm business debt has been more than offset by the 29-percent rise in the value of farm business assets. Farm real estate, which represents the largest component of farm assets, is expected to increase in value in 1999. The increase will be relatively small compared with previous years, reflecting the counterbalancing of lower prices in areas where agricultural uses dominate transactions and those areas where land values are increasing due to urban pressure and other factors. By the end of 1999, U.S. farm equity is expected to be $864.5 billion--$9.1 billion above 1998 and over $48 billion greater than in 1985. Lower overall input prices helped farmers and ranchers in 1998. Livestock producers were especially helped by lower feed costs, although feed grain producers saw lower receipts. The costs and returns estimates for some commodities will appear different this year than in the past. For corn, soybeans, cotton, peanuts, and cow-calf estimates, ERS is revising its accounting methodology to conform with new standards recommended by the American Agricultural Economics Association. For these same commodities, ERS is publishing regional estimates using new farm resource regions. Printed copies of Agricultural Income and Finance Situation and Outlook will be available in about 2 weeks. For further information, contact Bob McElroy at 202-694-5578. The full report may also be accessed on the ERS website at www.econ.ag.gov/. END_OF_FILE