ERS Report: U.S. Ag Economy Remaining Strong

U.S. agriculture is doing well, despite the larger economy still struggling to recover from recession, with exports heading to a record high and farmer profits near an all-time high, according to the Economic Research Service (ERS). Net farm income is forecast at $81.6 billion in 2010, up 31% from 2009 and 26% higher than the 10-year average of $64.8 billion for 2000-2009. Net cash income at $92.5 billion would be a nominal record, 2.3% above the prior record attained in 2008.

Net value added is expected to increase by almost $20 billion in 2010 to $132.0 billion. The net value added of agriculture to the U.S. economy in inflation-adjusted terms reached its two highest levels since the mid 1970s in 2004 and 2008.

Inflation-adjusted net cash income has reached levels not seen since the mid-1970s for the fourth time since 2004, including the forecast for this year. The mid-1970s was the last comparable period when U.S. farming enjoyed multiple years of sustained levels of high output and income.

Net cash income includes only cash receipts and expenses and is generally less variable than net farm income. Farmers can manage the timing of crop and livestock sales and of the purchase of inputs to stabilize the variability in their net cash income. Nonetheless, during 2000-2009 net cash income showed a significant degree of variability. In the 6 years when net cash income rose, the average increase was 10.4%. In years when net cash income decreased, the average decrease was 15.9%.

The values of both crop and livestock production have trended steadily upward over the last decade. However, the year-to-year movements in the two measures have not always been synchronized. In 2010, the rise in the value of livestock production (16.6%) is expected to be more than more than five times the rise in the value of crop production (3.1%). The forecast for higher farm income in 2010 is responding to increases in cash receipts for all the livestock categories, led by double-digit growth in meat animals and dairy products.

Net value added and net farm income have followed the value of commodity production over both the long term and in year-to-year fluctuations. Because farmers typically do not vary their production mix dramatically from year to year, purchases of production inputs have been relatively stable. Expenses for purchased inputs are projected to show a moderate increase of 2.5%, after posting a 6.4% decline in 2009.

Highlights Include:

• All three measures of farm sector earnings are forecast to rise in 2010, rebounding from double-digit declines in 2009.
• Net cash income is expected to rise nearly 34% from 2009, and 28.8% above the previous 10-year average.
• Net value added, at $132.0 billion, is expected to be up $20 billion from 2009, and will be 22% above its 10-year average. An increase in the value of livestock production accounted for almost all of the upward movement in net value added. The value of dairy production is projected to rise by 29.6%, meat animal production by 16.4%, and poultry/egg production by 9.9%.
• Net farm income, while forecast to be $5.9 billion below its all-time nominal record in 2004, has shown a rebound from 2009, a year in which demand for agricultural products fell due to the global recession.
• Total expenses are forecast to increase moderately.
• Total production expenses in 2010 are forecast to be 2.0% higher, reversing the 4.1% drop in 2009. This is in stark contrast to the 15.7% and 8.8% increases in production expenses recorded in 2007 and 2008.
• The 2010 forecast is for a rise of 10.4% in cash receipts from sales of farm commodities.
• Crop receipts are expected to increase $9.4 billion with cotton, soybean, and corn receipts expected to show the largest gains.
• Livestock receipts are expected to increase $20 billion in 2010, led by surges in cash receipts for dairy and hogs.
• Government payments are forecast to be $12.4 billion in 2010, a 1.5% increase from 2009.
• Price-sensitive crop and milk commodity program payments are expected to decrease by a combined $2.3 billion in 2010.
• Other government payments are expected to increase by $2.5 billion, led by a nearly $2.2 billion increase in disaster assistance payments.

To view the full report go to ers.usda.gov and click on Farm Income Forecast 2010. ◆