USDA Forecasts Rise in 2010 Farm Income

The U.S. farm income picture is brighter, with 2010 net cash income forecast to be $76.3 billion, up $5.5 billion (7.8 percent) from 2009, and $3.5 billion above its 10-year average of $72.9 billion, according to the U.S. Department of Agriculture's (USDA) Economic Research Service (ERS).

Net farm income is forecast to be $63 billion in 2010, up $6.7 billion (11.8 percent) from 2009. The 2010 forecast is $1.4 billion below the average of $64.5 billion in net farm income earned in the previous 10 years. Still, the $63 billion forecast for 2010 remains the fifth largest amount of income earned in U.S. farming, according to ERS.

What is the difference between net farm and net cash income? Net farm income reflects income from production in the current year, whether or not sold within the calendar year; net cash income reflects only the cash transactions occurring within the calendar year. Net farm income is a measure of the increase in wealth from production, whereas net cash income is a measure of solvency, or the ability to pay bills and make payments on debt.

According to ERS, one of the keys to the farm income picture is the livestock sector.

"In 2010, the economic conditions for livestock producers are expected to improve, while the economic conditions for crop producers are expected to deteriorate slightly or stabilize," USDA noted. "Protein foods produced from animals and animal products are higher cost items, and subject to budgeting considerations. Amid a recession, consumers can reduce consumption of meat, milk, and eggs or buy lower-priced products."

The economic recession that began in late 2008 and went through 2009 resulted in pressure on commodity prices and the U.S. livestock industry saw breeding herd numbers decline dramatically. "Now that the U.S. economy has stabilized and is showing signs of improvement, consumers are expected to increase their consumption of animal products, thus firming up market prices and improving the earnings of livestock producers, led by dairy farmers and cattle producers," USDA noted.

Total expenses are forecast to be little changed from 2009. The $9.3-billion decline in production expenses that occurred in 2009 was the first decline since 2002, but it followed the two largest year-over-year increases in expenses on record ($34.8 billion in 2007 and $22.5 billion in 2008).

As for production expenses, USDA notes that total production expenses in 2010 are forecast to rise to $281.4 billion, $0.7 billion (0.3 percent) higher than a revised forecast of $280.7 billion in 2009. This small increase follows a dramatic drop in 2009, when total expenses fell $9.3 billion (3.2 percent) and puts expenses at the second highest level ever.

At the current forecast level, total expenses would be 82 percent of gross farm income, 1 percent less than in 2009. Fuels and oils are the only expense items slated to rise more than $1 billion, but property taxes should also rise nearly that much. Feed, fertilizer and lime and real estate interest (a payment to stakeholders) are expected to decline more than $1 billion each.

Additional information is available at www.ers.usda.gov/Briefing/FarmIncome/nationalestimates.htm.