Income Outlook and Financial Circumstances Are Largely Positive But Vary Among Farm Businesses
Average net cash income for farm businesses (intermediate and commercial operations, including nonfamily farms) is projected to be $82,800 in 2011 (see table), nearly 17 percent above the 2010 estimate of $71,000. With prices expected to approach record levels for major crops and some livestock, almost all regions will have higher net farm incomes in 2011 (see map). Despite higher crop prices that cut into profit margins, most livestock farms, excluding poultry farms, are forecasted to have higher incomes.
Gains in net cash income, however, vary considerably across commodities and regions. (Net cash income is calculated as total farm receipts less expenses, and is different from net farm income (profit) as it does not take into account income tax obligations, changes in inventory value, and appreciation in the value of capital goods. Net farm income is often higher than net cash income because farms use various strategies to manage income tax liabilities.) Differences in income prospects also reflect the considerable variation in business structure, including the extent to which assets are owned, the mix of crop and livestock produced, the contribution of government payments to gross income, and the relative importance of energy inputs and borrowed capital to production costs. Several classifications of farms—including commodity specialization and geographic location—reflect this diversity.
Different levels of growth in receipts are driving differences in forecast net cash income for crop farms. Most crop farms are forecast to have higher earnings—despite expected increases in input costs for farm businesses—in 2011. The largest increases are expected for fuels and fertilizer at 27 and 28 percent, respectively. Rental and lease (10 percent) and seed (7 percent) expenses are forecast to increase as well. Together, these inputs account for at least 70 percent of average cash expenses on corn, soybean, and peanut farms and at least 60 percent of average cash expenses on cash grain, wheat, cotton, and rice farms.
The largest increase in average receipts from 2010 is projected for corn, mixed grain, soybean, and peanut farm businesses, all at approximately 16 percent. In contrast, average net cash income is forecast to decline in 2011 for farms that specialize in other field crop production (sugar crops, hay, silage, trees, and woody crops). Average receipts for other field crop producers are expected to be 9 percent higher than in 2010, but average expenses are forecast to rise by 13 percent, driven by increases in fertilizer, fuel, and utilities of over 20 percent.
Specialty crop producers (fruits, vegetables, and nursery/greenhouse) will see an increase in net cash income of over 4 percent, on average. Although almost all expenses are expected to increase for all producers, specialty crop producers are expected to experience a 16-percent decrease in labor expenses, which make up almost one-third of their total expenses. Although labor costs have increased slightly from 2010, less labor is being used in 2011. This could be due to increased mechanization, lower output (less crop to harvest due to bad weather), and/or a reduction in the farm labor supply. Total cash expenses are expected to increase by only 4 percent, on average, for specialty crop producers, the smallest increase among all crop producers.
Various factors are responsible for the strength in dairy product prices. Exports have supported prices for a wide range of dairy products, and are likely to stay above year-ago levels due to increased purchases in key foreign markets. With an expected second consecutive year of gains over 20 percent in wholesale milk prices, dairy cash receipts are forecast to be 26 percent higher in 2011, on average. Expenses for farm businesses that specialize in dairy production are forecast to rise by 14 percent in 2011, with feed contributing most to the increase. Even with higher costs, average net cash incomes for dairy producers are forecast to be more than 57 percent higher than in 2010.
Despite record high cattle prices throughout 2011, cow inventories and beef production have been declining since the mid 1990s. Even so, cattle receipts are projected to be 16 percent higher in 2011, on average. Average net cash income for farms that specialize in cattle production are forecast to be nearly 21 percent higher than in 2010. Higher feed costs, energy costs, and potential drought impacts could dampen the impacts of higher cash receipts, with average cash expenses forecast to increase by almost 15 percent.
Much like the rest of the livestock sector, exports have become an important outlet for U.S. pork production. In 2011, pork exports could account for as much as 22 percent of domestic production. Production is expected to reach or slightly exceed last year's level, and with prices projected 19 percent higher, hog receipts are forecast to be 22 percent higher, on average. Even with higher expenses (particularly for feed, which represents 29 percent of total operating costs), average net cash income for pork producers is projected to be 23 percent higher in 2011.
In response to higher feed costs, broiler production is not expected to expand much in 2011. Even with strong prices for both beef and pork products, wholesale prices for most broiler products are projected to be below 2010 levels. Overall, average receipts for poultry and egg producers are forecast to be 4 percent higher in 2011 with the anticipated 5-percent decline in broiler receipts being offset by significant gains in turkey and egg receipts. With higher prices for major inputs such as feed, fuels, and utilities (combined they represent 58 percent of total cash expenses), average net cash income is projected to fall by 18 percent in 2011 for farm businesses that specialize in poultry.
There is considerable regional disparity in the outlook for 2011 farm business income, although most regions are expected to experience gains. Price strength for grains and oilseeds will result in much higher average net cash incomes for farm businesses in the Heartland (22 percent above 2010). Producers in the Northern Crescent region are expected to benefit from higher dairy and grain earnings with average net cash income forecast to be 24 percent higher than in 2010. Improved cattle incomes are contributing to the Prairie Gateway region's projected 21-percent increase in average net cash income for farm businesses. Only one region is forecast to experience lower average income in 2011. In the Southern Seaboard, where poultry accounts for 48 percent of the value of agricultural production, average farm business income is forecast to decline by 2 percent in 2011. All other regions have forecasts of at least a 7-percent improvement in average net cash income over 2010.
Projected net cash income varies considerably by size of farming operation in 2011. Commercial operations (sales greater than $250,000), which represent about 12 percent of farms and over 80 percent of production, are expected to experience a 17-percent increase in average net cash income. Intermediate farms (primary occupation of farming and gross sales below $250,000), are projected to have incomes about 14 percent higher than in 2010. Many intermediate farms specialize in livestock production. About 60 percent of U.S. farms are classified as rural residences—operators of which typically earn most of their household income from off-farm sources. The vast majority of these rural-residence farmers were employed off-farm prior to becoming a farmer, with a much larger share of both operators and their spouses having off-farm jobs. The farm operations of these households (which are excluded from calculations of average farm business income) have for many years averaged a negative net cash income, with 2011 no exception.
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