AGRICULTURAL INCOME AND FINANCE -- SUMMARY December 21, 1999 December 1999, ERS-AIS-73 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. -------------------------------------------------------------------------------- Decline in 2000 Farm Income Tempered by Government Payments Abundant supplies, low commodity prices, and government assistance figure prominently in the first calendar year 2000 income forecasts. Net farm income is forecast at $40.4 billion in 2000, down $7.6 billion from the preliminary estimate of $48.1 billion for 1999. Net cash income is forecast at $49.7 billion, $9.4 billion less than the preliminary estimate for 1999 of $59.1 billion. From a longer term perspective, net farm income is forecast to be 88 percent of the 1990-99 average, with net cash income at 90 percent of the 1990-99 average. The impact of low commodity prices is reflected in the $1.7- billion drop in total crop receipts from 1999 to $93.3 billion, the lowest since 1994. Year 2000 receipts are forecast down $2.1 billion for major field crops, but up $1.2 billion for fruits, vegetables, and greenhouse/nursery products. Livestock receipts will increase for the second consecutive year based on continued growth in the poultry sector and modest improvement in cattle and hogs. Dairy receipts are expected to fall nearly $2 billion from 1999 to their lowest level since 1997. Government assistance has played an important role in stabilizing gross and net income for the U.S. farm sector. For 2000, government payments are forecast at $17.2 billion, contributing 7.8 percent of gross cash income. This is $5.5 billion below 1999's estimated record of $22.7 billion. Continued low prices for major crops generated a substantial increase in 1999 loan deficiency payments (LDPs) from 1998 and will continue to do so in 2000. LDPs compensate farmers for the difference between posted county prices and Commodity Credit Corporation loan rates, and are forecast at $7.9 billion for 2000. LDPs are estimated at $6.9 billion in 1999, compared with $1.8 billion in 1998. The forecast for direct government payments in 2000 also includes $2.8 billion in emergency assistance compensation from the Fiscal Year 2000 Agricultural Appropriations legislation, as well as payments from production flexibility contracts and conservation and other programs. Forecast at $192.3 billion for 2000, total production expenses will have risen less than 1 percent for the third straight year after rising more than 4 percent each year from 1993 to 1997. A large part of this leveling-off has been due to the fall in cash grain prices, which led to lower feed costs to livestock producers. Total production expenses in 2000 will equal 84 percent of gross receipts and exceed 90 percent of gross receipts less government payments. These would be the tightest operating margins since 1980-84. Despite an increase in debt in recent years, farm business balance sheets have improved steadily throughout the 1990s, especially since 1992. Equity positions have generally improved, and debt-to-asset ratios have declined as the increase in farm business debt has been more than offset by a rise in the value of farm assets. Farm debt is anticipated to stand at $172.5 billion by the end of 2000, down slightly from 1999. With farm assets forecast at $1,073.5 billion for 2000, farm equity should reach $901 billion by the end of 2000. At this level, farm equity would be $7.2 billion above 1999 and over $332.2 billion greater than in 1996. In 2000, a relatively large decline in income from farming will be partially offset by increasing off-farm income, leaving average farm household income forecast at $59,350. This is down from the $61,363 estimated for 1999, but remains similar to the 1998 average of $59,734. Earnings of the operator's household from off-farm sources have been steadily increasing, while the earnings from farming activities have been volatile over time. The persistence of low commodity prices in 2000 will aggravate cash-flow problems for farm businesses in several regions. Relative to 1998, the largest declines in average net cash income are expected in the Mississippi Portal, Eastern Uplands, Southern Seaboard, and the Heartland. These areas will be hard hit by dramatic declines in prices for rice and tobacco as well as continued low prices for corn and soybeans. Higher cattle prices and relatively cheap feed should boost average net cash income in the Northern Great Plains and Prairie Gateway regions relative to the 1994-98 average. For most regions, at least one in four farm businesses will not cover cash expenses. The exceptions are the Heartland and the Northern Crescent. The story for net cash income is basically the same for all commodity specialties. A stable or, at best, a very modest increase in livestock receipts will not offset the continued erosion of crop receipts, a reduction in government payments from their historic highs of 1999, and a continued modest rise in production expenses. While row-crop farms will sustain the largest drops in net income, specialty crop and livestock farms will also experience reductions from 1999. When compared with the average income earned during 1994-98, a slightly altered picture emerges. Income for major row-crop farms is less than the previous 5-year average, but farms with the largest reductions include tobacco, cotton and peanut farms, general crop farms, and soybean farms. Specialty crop and livestock farms (apart from hog operations) are expected to have incomes in 2000 that exceed their 1994-98 average. Livestock farms will have the largest increase of any farm type. Reduced income in 2000 will require farmers to manage tighter cash flows. A higher proportion of debt service capability will be used, eliminating credit reserves and exposing a larger share of farms to potential debt repayment problems. Lower incomes rather than substantially rising debt levels or falling asset values will be the key factor that may contribute to rising debt service problems. The greatest increase in use of debt service capacity will be for major row-crop farms, especially those that specialize in wheat and corn. Regionally, a relatively high incidence of debt repayment problems is expected in the Mississippi Portal, Prairie Gateway, and Northern Great Plains, where debt repayment difficulty has persisted over the last several years. Printed copies of Agricultural Income and Finance Situation and Outlook will be available in about three weeks. For more information, contact Robert McElroy at (202) 694-5578. The full report also will be available electronically via the ERS web site at www.econ.ag.gov. END_OF_FILE