The USDA Economic Research Service (ERS) is projecting net farm income to be up 31% in 2010, as compared to 2009 figures. The total net farm income for U.S. farmers in 2010 is estimated at $81.6 billion, which is an increase of $19.4 billion over the 2009 level of $62.2 billion. The 2010 forecast for net farm income is $16.8 billion above the 10-year average in the U.S. of $64.8 billion/year. The projected $77.1 net farm income is the fourth highest in U.S. history. All of the top five U.S. farm earnings years have occurred in the past decade, topping $80 billion in 2004 and 2008, and topping $70 billion in 2005, 2007 and 2010. The record net farm income was $90.8 billion in 2008.
The USDA ERS is projecting the net cash income for U.S. farmers to be up 34% in 2010, as compared to 2009 levels. The 2010 net cash income for farmers is estimated at $92.5 billion, which is up $23.4 billion from the 2009 net cash income level of $69.1 billion. The 2010 net cash income estimates are about 26% above the 10-year U.S. annual average net cash income on all farms. The net cash income is projected to rise more than the net farm income due to the added value of carryover 2009 grain stocks that were liquidated during 2010. The net cash income is based solely on the earnings generated from crop and livestock sales that occurred during 2010, minus the cash expenses during the year. The net farm income is adjusted for values of farm inventories and other farm balance sheet adjustments.
Some feel that the final levels of net farm income and net cash income for 2010 may actually exceed the USDA projections that were released in late summer. This is primarily due to the sharp increases in crop prices during the fourth quarter of 2010.
After being at a record high level in 2008, total farm expenses in 2009 declined by nearly $26 billion, which was the first decline in over two decades, according to the USDA Farm Production Expenditures Summary. The decline in expenses was highlighted by significant reductions in fertilizer and fuel expenses in 2009, some of which carried over into 2010. Total farm expenses in the U.S. for 2009 were listed at $281 billion, compared to $307 billion in 2008. According to the USDA data, total farm expenses averaged about $131,137/farm in 2009, which reflected a 6.4% decrease in farm expenses from the 2008 level of $140,075/farm.
Total crop production expenses increased by 16% from 2007 to 2008, with most of that increase due to significantly higher average costs for fertilizer, fuel and seed. Average fertilizer costs alone increased by an impressive level of 33% from 2007 to 2008, but settled back to a 10.7% decrease from 2008 to 2009. The report showed that U.S. farmers spent $12.4 billion on all fuels in 2009, which was a decline of 22.5% from 2008 expenditures. The average farm spent $5,658 on all fuels in 2009 – $1,642 les than 2008 levels.
Total farm expenses for 2010 were only expected to increase by about 2%, compared to 2009 levels, which has helped to generate the added net farm income projections for 2010. Farm expenses for 2010 are expected to be higher for fuel cost, feeder livestock and feed costs, but lower for fertilizer, seed cost and interest expense. As we look forward, costs of seed, fertilizer, fuel and land rent are all expected to increase significantly for the 2011 crop year.
The Bottom Line
The total equity or net worth of all U.S farms is now estimated at $1.86 trillion, which has increased by over $100 billion from 2006 to 2009. The increase has been primarily due to increased farm real estate values, and reductions in farm debt levels. Total farm estate values have risen from $1.62 trillion in 2006 to an estimated $1.77 trillion in 2010. After increasing significantly from 2006 to 2008, total farm debt is expected to decline by $10.4 billion from 2009 to 2010. The total U.S. farm debt-to-asset ratio is calculated at the very low level of 11%, which means that there is only $11 of farm debt for every $100 of farm assets.
The farm income situation looks to be quite solid for 2011; however, it may be difficult to match the projected high levels of net farm income that are projected for 2010. Preliminary 2011 crop budgets are projecting significant increases in farm expenses for seed, fertilizer and fuel, as well as sharp increases in land rental costs. The higher 2011 crop expenses are being offset by projected higher corn and soybean prices for the 2011 crop year. If there are any crop production problems in 2011, or if crop prices drop significantly in the next six to 12 months, farm income levels for 2011 could drop significantly from expected 2010 levels. Livestock producers are facing much higher feed costs, steady livestock prices, and very tight profit margins for 2011.
Editor’s note: Kent Thiesse is a former University of Minnesota Extension educator and now is Vice President of MinnStar Bank, Lake Crystal, MN. You can contact him at 507-726-2137 or via e-mail at [email protected]