AG-ECO NEWS
Jose G. Peña
Professor and Ext. Economist-Management
23 September 2010
Vol. 26, Issue 27
U.S. Net Farm Income Forecast for 2010, Up 24 Percent
Production Costs Up Slightly from 2009
Jose G. Peña, Professor and Extension Economist-Management
After last year’s financially difficult year, USDA’s August estimate of U.S. net farm income for 2010 at $77.1
billion is up $14.9 billion (24 percent) from 2009, but down $9.5 billion (10.9 percent) from 2008’s record high of
$86.6 billion. The 2010 forecast is
$12.3 billion above the average of
$64.8 billion in net farm income
Figure 1: U.S. Net Farm Income and
Direct Government Payments
2000-2010F
during the past 10 years (20002009) (See Figure 1).
If realized, the $77.1 billion
forecast for 2010 will be the third
largest farm income earned during
the last 10 years. Farm income
exceeded $80 billion in 2004 and
2008 and topped $70 billion in 2005
$100
$90
$80
$70
$60
$50
$40
$30
$20
$10
$0
Billion
13.0
51.5
20.7
22.9
16.5
2000
70.3
11.9
11.9
57.4
62.2
64.8
12.3
16.4
15.8
40.2
74.4
72.8
12.4
50.2
25.0
77.1
12.2
74.6
24.4
59.7
47.9
86.6
85.8
Direct Government
Payments
30.8
27.8
2001
2002
43.2
2003
65.2
58.4
49.9
41.6
48.4
Net Farm Income from Production
2004
2005
2006
2007
2008
2009
2010F
and 2007. The drop in 2009 was
20002009
AVG.
F = Forecast
influenced by a significant drop in
Source: USDA-ERS Farm Income and Costs: Farm Sector Income Report, August 31, 2010
commodity prices after record or near record highs in 2008. Increased input production costs carried over from
2008s highs also eroded earnings in 2009. Commodity prices have improved since then. Input costs in 2010
increased just slightly over 2009, but improved commodity prices, especially during the 2
nd
half of 2010, improved at
a higher rate than input costs.
According to USDA’s August 2010 estimate, after declining more than 20 percent in 2009, all three
measures of farm sector earnings are forecast to rise in 2010. Net cash income is expected to rise about 24
percent, to a level above its previous 10-year average; net value added, at $127.3 billion, is expected to be up $15.2
billion from 2009 and remain 17.7 percent above its 10-year average; and net farm income, while forecast to be $9.5
billion below 2008’s record, shows a rebound from 2009, a year in which demand for agricultural products fell
worldwide due to the global recession.
In 2008, prices for both farm commodities and farm production inputs spiked in the first half of the year,
plunged in the latter half, but remained high by historic standards. Increased demand for corn for ethanol production
moved commodity prices higher and a relatively weak dollar attracted increased exports. Ending stocks of many
commodities dropped, but commodity prices trended downward late in 2008 as national and world economies
softened. High input costs and weakened markets extended into 2009, but the situation in the agricultural economy
showed a significant improvement in 2010.
Table 1: Commodity Prices
2008
2009
January 2010 September 2010
calendar calendar
WASDE
WASDE
average average
Corn, $/bu.
4.78
3.74
3.40-4.00
4.00-4.80
Cotton, ¢/lb.
60.79
48.88
57.0-64.0
63.0-77.0
Soybeans, $/bu.
11.31
10.05
8.90-10.40
9.15-10.65
Wheat, $/bu.
8.02
5.30
4.70-5.00
4.95-5.65
Hogs, $/cwt
47.65
41.98 44.00-48.00
55.00-56.00
Steers, $/cwt
92.27
83.25 86.00-93.00
93.00-95.00
Milk, $/cwt
18.33
12.83 16.20-17.09
15.85-16.85
Crop prices have improved after
Commodity
weakening in 2009. Price strength stems from
increased export demand as the global economy
recovers and global supply concerns in grains
and cotton. Table 1 provides a comparative
summary of U.S. price estimates for selected
Source: World Agricultural Supply and Demand Estimates (WASDE)
commodities.
There are indications that the U.S. and global economies are gradually recovering from the worst recession
since the Great Depression. A specific beneficiary of improving economic conditions is the livestock sector. While
corn prices are up and may remain strong as a result of continued strong demand for ethanol production and
exports, cattle numbers are down. Increased exports, growing domestic demand, and smaller supplies provide
underlying support for higher cattle prices. Even with higher corn prices, feed costs remain manageable in relation
to current cattle prices.
Production Costs Up One Percent
USDA’s August estimate of
Figure 2: U.S. Total Farm Expenses
production expenses in 2010 estimates an
increase of about $4.0 billion (1.0 percent)
350
from 2009, but down 3.0 percent from
300
Billion dollars
Manufactured Input Expenses
Interest Charges
293.0
269.2
2008’s record high of $293.0 billion (See
Figure 2). The increase in gross income
250
15.1
232.7
14.4
200
55.0
46.3
37.5
49.0
44.9
will be larger than the increase in costs
leaving all measures of income and output
above 2009.
According to USDA, crop receipts
150
42.9
100
61.1
73.4
50
76.9
281.0
15.4
13.9
49.0
49.2
50.4
51.2
Overhead Expenses
79.8
77.0
76.5
89.5
93.3
2009
2010F
Farm Origin Inputs
89.5
93.7
Other Operating Expenses
0
2006
are forecast to increase a modest 0.4
2007
2008
F = Forecast
percent with soybean and cotton receipts
284.0
15.2
Source: USDA-ERS Farm Income and Costs: Farm Sector Income Report , August 31, 2010
2006-2009
Average
$269.0
expected to show large gains while corn receipts record the largest annual decline.
Livestock receipts are expected to increase $17.7 billion in 2010, led by a 26-percent surge in cash receipts
for dairy.
Increased Financial Risk
Meanwhile, direct government payments are expected to total $11.9 billion in 2010, down 3.2 percent from
the $12.3 billion in 2009, but 27.4 percent below the 10-year average (2000-2009) of $16.4 billion.
Direct and Counter-Cyclical Program (DCP) payments and the Average Crop Revenue Election (ACRE)
program are forecast at $4.81 billion for 2010, about a four percent decrease from the average of the previous five
years. Countercyclical payments are forecast to decrease by 79 percent in 2010, from $1.17 billion in 2009 to $243
million in 2010. Strong cotton prices are responsible for this projected decrease. Only upland cotton and peanuts are
projected to receive countercyclical payments in 2010.
The decrease in total direct government payments indicates that the farm sector is carrying more financial
risk, even with the modest market increase in commodity prices relative to higher input costs.
Appreciation is expressed to Dr. James Welch, Extension Economist for his contribution to review of this article.