AG-ECO NEWS
Jose G. Peña
Vol. 23, Issue 35
Professor and Ext. Economist-Management
December 4, 2007
U.S. Net Farm Income Forecast Up $28.5 Billion
Production Costs Up $21.7 Billion
Jose G. Peña, Professor and Extension Economist-Management
USDA’s November 29, 2007, estimate of U.S. net farm income for 2007 at $87.5 billion is up $20.9 billion
(31%) from USDA’s initial estimate of $66.6 billion in February 2007 and up $28.5 billion (48%) from $59.0 billion in
net income in 2006. If realized, net farm income in 2007 will be up $31.1 billion (52%) from a 10-year average of
$57.4 billion and top the previous record of $85.9 billion in 2004. (See Figure 1)
While some producers lost some
crops to excessive mid-summer rains in
parts of Texas and the U.S. southeast
Figure 1: U.S. Net Farm Income and
Direct Government Payments
1997-2007F
region experienced a severe drought this
$90
past summer/fall, in general, 2007 is proving
to be a very good year for U.S. producers,
Billions
12.1
$80
$70
Direct Government Payments
U.S. farm income is primarily the result of
$50
According to USDA-ERS Farm Income and
7.5
$40
$30
high commodity prices and improved yields.
51.5
50.5
45.6
12.4
46.8
47.9
21.5
22.9
20.7
16.5
77.1
24.4
59.7
$60
both crops and livestock. The boost in 2007
87.5
85.9
13.0
59.0
57.4
15.8
72.9
40.2
16.9
75.4
52.7
12.4
43.2
43.0
43.2
33.2
$20
25.0
25.3
30.8
$10
40.5
27.8
Net Farm Income from Production
$0
Costs: 2007 Farm Sector Income Forecast
report of November 29, 2007, the estimated
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007F
19972006
Average
F = Forecast
Source: USDA-ERS Farm Income and Costs: Farm Sector Income Report, November 29, 2007
values of crop and livestock production at
$148.5 billion and $140 billion, respectively, are forecast to be a record high. Ethanol production is the single most
significant activity affecting agricultural production. U.S. interest in renewable fuels has boomed in the last two years.
Corn is the prime beneficiary of the increased production of biofuels, but soybeans are also used. Price bids for corn
have almost doubled since last year and the outlook appears good as demand continues to increase.
Prices for a number of other major commodities have been higher throughout the year, and unexpectedly
high for wheat, soybeans, and milk, among others. In addition, increased export demand for grains due to world
reduced production as a result of extended droughts in competitor countries and increased international consumption
is reducing world supplies and boosting grain prices. U.S. agricultural exports increased to a record high of $7.5 billion
in August ‘07, one billion dollars above July ‘07 and $2.1 billion over August ‘06. This record level is due to huge
exports of wheat, corn, and soybeans. With international growth in population and rising incomes, global wheat
consumption has exceeded production
in recent years.
Figure 2: U.S. Total Farm Expenses
Production Costs Up
While the rise in commodity
300
prices is boosting gross farm income,
USDA-ERS November 29, 2007 forecast
report indicates that U.S. production
250
Billion dollars
Purchased Inputs
Manufactured Input Expenses
Other Expenses
200.3
210.0
200
222.5
150
average by $53.5 billion, partially
100
(See Figure 2). The estimate of U.S.
production costs for 2007 at $254.2
billion is up $21.7 billion (11%) from
45.9
43.6
28.7
31.6
1997-2006
Average
$200.7
41.1
40.2
expenses in 2007 will exceed a 10-year
254.2
44.5
38.5
offsetting the rise in gross farm income.
232.5
35.4
37.0
133.2
138.2
143.5
151.1
2003
2004
2005
2006P
167.2
50
0
2007F
P = Preliminary; F = Forecast
Source: USDA-ERS Farm Income and Costs: Farm Sector Income Report, February 14, 2007
2006 and up $30.9 billion (16%) from
2005, the year prior to the most recent increase in energy cost. This would indicate that agricultural production costs
have increased an average of 16 percent since 2005. Meanwhile, direct government payments are expected to total
$12.1 billion in 2007, down $1.5 billion from USDA’s initial estimate of $13.6 billion in February ‘07 and down $3.7
billion from the $15.8 billion paid out in 2006. This level would be 26 percent below the previous 5-year average and
would indicate that even though commodity prices are high, the farm sector is carrying more risk, especially since
Congress and the Administration have failed to pass a new farm bill.
Net farm income is the difference between gross farm income and production expenses. Consequently, net
farm income in 2007 is forecast to be over $30 billion (52.6%) above its 10-year average of $57.4 billion.
Value of Crop Production
USDA-ERS’s November 29, 2007 report forecast the value of crop production to rise by over $30 billion in
2007 to $148.5 billion, the largest annual increase since 1984. Receipts from corn and soybeans—the top two crops
are both expected to rise, with corn receipts reaching nearly $33 billion and soybeans $21 billion. Cash receipts for
wheat and rice are expected to rise to all-time highs of $10 billion and $2 billion, respectively. Receipts for vegetables
are expected to rise over $2 billion. Cash receipts for cotton and for fruits and nuts are expected to decline in 2007,
with fruits and nuts slipping around $1 billion.
Value of Livestock Production
Despite the significant increase in livestock feed as prices for corn and other feed grains reach near record
highs, USDA-ERS forecasts the value of livestock production in 2007 to rise to a record $140 billion. Cash receipts
from all livestock species are forecast to exceed the $100-billion mark for the fifth consecutive year and the previous
high by $15 billion.
Consumers Financing Energy Independence
While prices for grains have increased substantially, it appears clear that consumers are sharing the costs of
this recent move towards energy independence. According to USDA-ERS , U.S. Farm Sector Overview report of
October 31, 2007, in 2007, the Consumer Price Index (CPI) for all food is projected to increase 3.5 to 4.5 percent, as
retailers pass on higher commodity and energy costs to consumers in the form of higher retail prices. Food-at-home
prices are also forecast to increase 3.5 to 4.5 percent, while food-away-from-home prices are forecast to increase 3.0
to 4.0 percent in 2007. The all-food CPI increased 2.4 percent between 2005 and 2006.