Net Farm Income Forecast Up 28 Percent in 2011
Net farm income is forecast at $100.9 billion for 2011, up $21.8 billion (28 percent) from 2010. Net farm income reflects income from production in the current year, whether or not sold within the calendar year.
Net cash income, at $109.8 billion, is forecast up $17.5 billion (18.9 percent) from 2010, and $34.2 billion above its 10-year average (2001-2010) of $75.6 billion. Net cash income reflects only the cash transactions occurring within the calendar year. Net farm income is a measure of the increase in wealth from production, whereas net cash income is a measure of solvency, or the ability to pay bills and make payments on debt. Net value added is expected to increase by almost $23.9 billion in 2011 to $153.7 billion. Net farm income and net cash income are both projected to exceed $100 billion for the first time in 2011. However, the rates of increase in both income measures show slight decreases from the previous year. The 2011 inflation-adjusted forecasts of net value added of agriculture to the U.S. economy and net cash income are the highest values recorded since 1974.
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Highlights
- Net farm income is forecast to rise 28 percent in 2011, matching the increase recorded in 2010.
- Net farm income and net cash income are both projected to exceed $100 billion for the first time in 2011.
- The USDA expects a more than 16-percent increase in sales of crop and livestock by U.S. farm operations in 2011, with gains spread out among many different categories.
- Crop sales are expected to exceed $200 billion for the first time in U.S. history, with record or near-record levels across different crop categories.
- Livestock sales are predicted to rise almost 17 percent, with double-digit increases across most categories, especially red meats.
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Total production expenses are forecast to jump about $34 billion (12 percent) in 2011 to nearly $320 billion, driven by increases in input prices.
- Government payments are forecast to be $10.6 billion in 2011, a 14.4-percent decrease from 2010.
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official USDA estimates and forecast tables.
Amounts in this article are in nominal dollars. Estimates and forecasts in constant (2005=100) dollars are available.
Double-Digit Increases in Crop and Livestock Cash Receipts Expected in 2011
Crop receipts are expected to rise over 16 percent in 2011, reflecting large anticipated increases in prices, especially for hay, corn, wheat, and cotton. Livestock receipts are expected to rise nearly 17 percent, led by strong prices for dairy and red meats. The 2011 forecasts, if realized, will mean record or near-record sales and price levels for many crop and livestock categories and represent substantial increases over last year.
Sales of wheat are expected to increase by almost 30 percent over 2010 levels, reflecting USDA's forecast of over 1.9 billion bushels sold at an annual average price of $7.43 per bushel. U.S. wheat production for 2011 is expected to decline over 200 million bushels from last year. U.S. wheat use is projected to fall as a decline in 2011 marketing-year exports exceeds the increase in U.S. domestic wheat usage. The USDA rice production forecast for crop-marketing year 2011 is 23 percent below last year, despite an expected average yield increase of nearly 7 percent. Total use of U.S. rice for crop marketing year 2011 is expected to be 13 percent below last year's record high, with domestic and residual use down about 8 percent from last year's record. U.S. rice exports for marketing-year 2011 are expected to decline 18 percent. U.S. rice receipts are expected to decline almost 14 percent, with the price of U.S. rice averaging $13.69 per cwt in calendar-year 2011.
USDA expects the 2011 corn harvest to be the fourth largest on record. However, U.S. feed and residual use is expected to decline due to declining meat production, especially broilers. Corn exports for marketing-year 2011 are expected to fall, with future sales limited by relatively high U.S. prices and strong foreign competition. U.S. corn receipts are expected to increase over one-third in 2011. The USDA predicts over 10.3 billion bushels of corn for grain will be sold by U.S. farm operations at an average price of $6.04 per bushel during calendar-year 2011.
Soybean sales are expected to experience solid single-digit gains in calendar-year 2011. However, expectations are for a decline in U.S. production and exports for the crop-marketing year, with export declines especially pronounced in China. Overall, U.S. domestic use of soybean oil is anticipated to rise as higher use for biodiesel more than offsets a fall in edible consumption. A weak outlook for U.S. feed demand means declining U.S. demand for meal. U.S. 2011 marketing-year export sales of meal are down 12 percent; however, soybean meal prices are projected lower than the prices of its substitutes and this may encourage U.S. meal exports to developing nations. U.S. soybean farmers are expected to average $12.89 per bushel in calendar-year 2011.
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Cotton receipts in 2011 are expected to rise to almost one-third above their 2010 level. U.S. cotton exports are forecast to account for the lowest share of global trade in the past 10 years. The 2011 U.S. cotton crop is forecast 8 percent below 2010, and U.S. demand in marketing-year 2011 is expected to be the lowest since the 1999 marketing year. U.S. cotton producers are expected to receive 89 cents per pound on their lint sales and $237.67 per ton on their sales of cotton seed in 2011.
Double-digit increases in quantities sold are expected for avocados, almonds, walnuts, and cranberries in 2011. Double-digit declines in quantities sold are expected for pecans and lemons. Overall, fruit and tree nut sales are predicted to rise over 3 percent as the average price for fruit and nuts increases a little over 3 percent. Almonds have benefited from a record-breaking harvest. However, pecan production has suffered from drought conditions. U.S. potato prices are expected to average about $9.80 per cwt in 2011. Expectations of increased potato sales reflect a price increase combined with an expected increase in quantity sold. Despite a small 2011 crop and moderate demand, dry bean receipts are forecast to increase as U.S. dry bean prices average $35.49 per cwt in 2011, 27.6 percent above 2010.
Large anticipated price increases in 2011 are expected to generate strong sales for U.S. livestock. Drought has continued to play a major role in U.S. beef cattle markets. Exports of U.S. beef are up 27 percent from last year. Dairy receipts are expected to increase by more than one-quarter as milk prices received by dairy farmers rise to more than $20/cwt. Large sales increases are anticipated for all three red meat categories, with a large but lesser increase for turkeys and chicken eggs. Hog producers are expected to benefit from strong demand for U.S. pork products, especially from Japan and China. Turkey shipments are forecast to increase 18 percent from 2010.
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Estimating Calendar-Year Cash Receipts With
Crop Marketing Year Data
Annual USDA income and value-added estimates, such as
cash receipts, are measured in calendar years (January 1
through December 31). Crop marketing years are 12-month
periods capturing farm operations’ economic activity
from the beginning of a new harvest through when the
crop is typically sold. The U.S. has a marketing year
for each crop, but different marketing years can exist
for the same crop grown in different States. For
example, the corn for grain crop marketing year for the
U.S., Iowa, and Illinois is September 1 through August
31, whereas for Florida and Georgia it is August 1
through July 31, and for certain other States it is
October 1 through September 30. Livestock and some crop
marketing years coincide with calendar years.
For crops that are marketed across two calendar years (say
2009 and 2010), ERS uses the share marketed in 2009 in
its estimate of 2009 cash receipts, while the remainder
is used in the estimate for cash receipts for 2010. For
example, suppose 30 percent of Illinois corn harvested
in 2009 is sold in the open market from September
through December of 2009 with the remaining 70 percent
sold from January through August of 2010. Cash receipts
from open-market sales in 2009 would include the share
of Illinois’ harvest that was sold in 2009. The share of
the 2009 harvest sold in 2010 would be added to the
share of the 2010 harvest sold in 2010 to arrive at
Illinois’ 2010 cash receipts from open-market sales of
corn. To the amount received from open-market sales, ERS
adds cash received from “sales” to the CCC to obtain the
calendar-year estimate for cash receipts. |
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Production Expenses Rise More Than $30 Billion in 2011
After falling $12.0 billion (4.1 percent) in 2009 and rebounding a relatively modest $4.5 billion (1.6 percent) in 2010, total production expenses are set to rise $34.4 billion (12.0 percent) in 2011 to a nominal record $320.0 billion. The 2011 jump resembles the large increases in production expenses in 2007 and 2008. This is the first time that expenses will have exceeded $300 billion. When adjusted for inflation, 2011 expenses also set a record, surpassing the previous peak reached in 1979.
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On the price side, total expenses are affected by an expected 12-percent increase in the Production Items, Interest, Taxes, and Wage Rate (PITW) prices-paid index. On the quantity side, total output (and therefore the quantity of inputs used) is predicted to decrease by 4.4 percent for crops and increase 1.1 percent for livestock. As a result, total output will be down 2.3 percent. Planted acres are forecast up 0.2 percent. Even with the expected increase in expenses, total expenses as a share of gross farm income, at 76 percent, is expected to be 2 percent lower than in 2010.
Every expense except labor and electricity is forecast to increase in 2011. Feed is expected to rise $10.3 billion (23 percent); livestock and poultry purchases, $3.5 billion (18 percent); fertilizer and lime, $5.8 billion (28 percent); and fuels and oils, $3.5 billion (27 percent). Seeds, miscellaneous expenses, repair and maintenance, and net rent to nonoperators should each be up more than $1 billion in 2011.
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The increase in expenses will affect crop and livestock farms differently. The principal expenses for livestock farms are expected to increase nearly $13.8 billion (18.5 percent), while the principal crop expenses are expected to increase $7.0 billion (14.7 percent). In addition, the value of crop production is expected to rise 18.5 percent while the value of livestock production is forecast to go up 16.6 percent, so the increase in expenses will impinge on net incomes of livestock farms more than crop farms.
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After rising $18.9 billion (67 percent) from 2006 to 2008, feed expenses fell almost $2 billion in 2009 and were up less than 1 percent in 2010. In 2011, feed expenses are forecast to rise by $10.3 billion (23 percent). Two factors contributing to this forecast are a 21-percent increase in the feed prices-paid index and the 1-percent projected rise in livestock output. The rise in the feed prices is due primarily to the forecast jump in feed grain and oilseed prices. The calendar-year price for corn, which constitutes over 90 percent of feed grains used, is expected to increase 57 percent in 2011. The calendar-year price for soybeans—the primary ingredient in soymeal, the principal oilseed feedstock—is expected to be up around 27 percent. The increase in feed prices will not be as great as the increase in underlying commodity prices because price changes for complete feeds, which have the heaviest weight in the prices-paid index, lag price changes in raw inputs used to manufacture complete feeds.
The feed and residual use of feed grains should be down around 3 percent in 2011. Again, this drop may not be reflected in the amount of complete feeds fed because of the lag between the input of raw materials and the finished product. Also, the demand for feed from feedlots will be heavier than the net placements of cattle-on-feed suggests. Lighter feeder cattle are being sent to feedlots because of poor pasture conditions in some areas. These cattle will consume more feed while in the feedlot. Additionally, the number of grain-consuming animal units should rise around 1 percent in 2011.
Livestock and poultry purchases are forecast to be up $3.5 billion (18.0 percent) in 2011. Since cattle account for 75 percent of this expense, conditions in the cattle market are the main driver of these purchases. Net placements of cattle-on-feed for 2011 are forecast to be nearly the same as in 2010, but the cost of feeder cattle should be up over 16 percent because of abnormally tight inventories, stable demand for beef products, high prices for Choice retail beef, and brisk exports. High retail prices for all beef products allowed feedlot operators to earn favorable returns for a time despite higher feeder cattle and feed costs. According to ERS' High Plains Cattle Feeding Simulator, the net margin in feedlots was positive between October 2010 and April 2011. Returns have gone negative since April, however, as feed and feeder costs have risen faster than the price for fed cattle. With respect to other animals, pork production should be up 1 percent in 2011 and prices for hog feeders are forecast to increase 17 percent. Broiler production is forecast down slightly, while prices should be up a small amount.
The principal crop-related expenses grew 77 percent between 2002 and 2008, with 48 percent of the rise occurring in 2007-08. During 2009-10, the climb stalled; crop-related expenses fell 4.5 percent in 2009 and recovered only 1.7 percent in 2010. The primary reason for this pattern was movements in fertilizer expenses, which jumped 134 percent during 2002-08 and then dropped 11 percent in 2009 before rising 4.5 percent in 2010. Crop-related expenses are expected to rise 14.7 percent in 2011, again due largely to an expected increase of almost 28 percent in fertilizer expenses.
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The principal driver of crop-related expenses throughout 2002-2011 has been changing input prices. Acres planted to principal crops have not been a factor in the long-term growth in these expenses since they have never exceeded the 327 million acres planted in 2002. Use of pesticides and more expensive seeds with increasingly complex genetic traits has increased, and this demand has been a factor in rising prices over this period. Increases in the price of natural gas, a principal source of many fertilizers, have contributed to the rise in fertilizer prices. The average annual price for natural gas was $2.95 per thousand cubic feet (tcf) in 2002. Its price in 2008, the year that the fertilizer prices-paid index reached its highest level, was $7.96 per tcf.
Prices for all crop-related inputs are expected to be up in 2011. Acres planted to principal crops will not be a big factor this year, as they are forecast to rise only 0.2 percent. Overall, grain and oilseed production should be down almost 6 percent. However, acres planted to corn, a heavy user of inputs, are forecast to have expanded 3.7 million acres in 2011. Production of fruits, nuts, and vegetables should be nearly the same as in 2010, and cotton production is forecast down 10 percent.
Between 1999 and 2008, prices paid for seeds rose 146 percent, with 64 percent of that rise occurring during 2006-09, and seed expenses increased $8.3 billion (115 percent). During the 2006-08 period alone, seed expenses jumped $4.1 billion (37 percent). The upward movement in seed costs slowed considerably in 2009 and 2010, with seed expenses rising only 8 percent. In 2011, seed purchases are predicted to rise almost $1.1 billion (6.7 percent) because of a rise of 6.5 percent in prices paid for seeds and the slight expansion in acres planted.
Fertilizer prices rose steadily between 2002 and 2008, with the annual average prices paid for fertilizers climbing 264 percent. During this period, fertilizer expenses rose $12.9 billion (134 percent). These increases abruptly halted in 2009, when fertilizer expenses dropped $2.4 billion (11 percent). As with seeds, fertilizer expenses rose around 5 percent in 2010. In 2011, fertilizer expenses are forecast to resume their steep climb, going up $5.8 billion (28 percent), as annual average prices paid rise nearly that much. One factor in this increase will be higher demand due to the increase in corn planted acreage. Also, the cost of oil, which influences the cost of many fertilizers, will likely continue to go up throughout 2011.
Pesticide expenses also rose steadily from 2002 to 2008. In 2007 and 2008 alone, they rose $2.7 billion (30 percent). Since prices paid for pesticides rose only 8.4 percent during those 2 years, increased use was the major reason for increases in this expense. Even though prices paid for pesticides continued to increase in 2009, pesticide expenditures fell slightly. Another decrease of about 8 percent ($900 million) occurred in 2010 as prices paid for pesticides fell and planted acreage declined. During 2009 and 2010, pesticide expenses fell more than 9 percent. In 2011, pesticide expenses are forecast to rise around $100 million (1.0 percent) as a result of a 1-percent rise in prices paid and a slight increase in planted acres.
As with fertilizer, prices paid for fuel rose dramatically between 2002 and 2008. During this period, annual average prices paid for fuel jumped 207 percent, registering 6 straight double-digit percentage increases, and fuel and oil expenses shot up $9.6 billion (146 percent). Prices paid for fuels then fell 34 percent in 2009 and expenditures dipped $3.5 billion (22 percent). Annual average prices paid for fuels were back up in 2010 and expenditures rose almost $500 million (4 percent). In 2011, prices paid are forecast to rise another 27 percent as Refiner Acquisition Cost (RAC) is expected to increase 32 percent. The price movement and increased acreage are forecast to raise expenditures for fuels and oils by $3.5 billion (27.0 percent).
The 3 manufactured inputs—fertilizer, pesticides, and fuels and oils—together are forecast to increase $9.5 billion (21 percent) in 2011, putting them $3.9 billion (7.6 percent) higher than their level in 2008. These expenses will constitute 17.0 percent of total production expenses in 2011, up from 15.7 percent in 2010.
Payments to Stakeholders Rise with Total Expenses
Payments to stakeholders, a claimant of net value added, do not generally track movements in net farm income. The year-to-year consistency in payments to stakeholders follows from the fact that they do not share the risk of equity holders. In 2011, payments to stakeholders, at $52.9 billion, are forecast to be up 4.1 percent ($2.1 billion), a much smaller percentage increase than net farm income. They are expected to constitute 16.5 percent of total production expenses (more than 1 percent less than in 2010) and 34 percent of net value added (5 percent less than in 2010). Hired labor is forecast to decrease while net rent to nonoperators and interest expenses are set to increase.
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Total labor expenses are forecast to fall around $350 million (1.3 percent) as a result of a forecast 1.1-percent rise in wage rates and 2.3-percent decrease in total output. Employee compensation for hired labor should decrease about $375 million (1.6 percent). Total output on three types of farms that employ the most labor—vegetables, greenhouse/nursery, and dairy—is expected to be up in 2011. Fruits/nuts output should be down marginally. Cash receipts on all these farms will be up almost 12 percent in total, following an 11.6-percent rise in 2010, led by dairy cash receipts, which are forecast up almost 26 percent. With prospects for further increases in net incomes, producers will likely hire workers at a higher rate than in recent years.
At $14.1 billion, net rent to nonoperator landlords is expected to increase $1.5 billion (12 percent) in 2011. This rise is about half of the increase in 2010. Cash rent is forecast to rise nearly 10 percent due to the increase in the value of crop output plus landlord government payments and a 7-percent increase in real estate values. Share rent is forecast to rise 18.5 percent, also in line with the increase in the value of crop output. Cash and share rent will not be affected much by the marginal increase in planted acres. Landlord government payments will be down and FCIC indemnities are projected to rise in 2011.
Interest expenses are forecast to rise $0.9 billion (6.8 percent) in 2011. Debt and interest rates that determine interest expenses are discussed in the Assets, Debt, and Wealth section of the Briefing Room.
Government Payments
Forecast at $10.6 Billion
Government payments paid directly to producers are expected to total $10.6 billion in 2011, a 14.4-percent decrease from the estimate of $12.4 billion paid out in 2010. Direct payments under the Direct and Countercyclical Program (DCP) and the Average Crop Revenue Election Program (ACRE) are forecast at $4.71 billion for 2011. Direct payment rates are fixed in legislation and are not affected by the level of program crop prices. However, the 4.9-percent decline in direct payments forecast in 2011 relative to the 2006-10 average is due to producers having enrolled in the ACRE program. Authorized under the Food, Conservation, and Energy Act of 2008, ACRE provides revenue insurance to producers in exchange for a 20-percent reduction in their annual direct payment allotments beginning with the 2009 crop year.
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With respect to program payments based on price levels, strong crop prices are expected to persist through 2011, reducing all expected program payments based on price to $45 million (a decline of 92 percent from 2010 levels). ACRE revenue insurance payments are expected to drop from $422 million in 2010 to $20 million in 2011. Countercyclical payments are forecast to be $17 million made to peanut farmers. Producers of program commodities are expected to receive $8.3 million in marketing loan benefits (MLBs)—including loan deficiency payments, marketing loan gains, and certificate exchange gains.
The Milk Income Loss Contract Program (MILC) compensates dairy producers when domestic milk prices fall below a specified level. For 2011, high milk prices are expected to nearly eliminate MILC payments for the year.
Tobacco farmers and quota holders are expected to receive $665 million in Tobacco Transition Payment Program (TTP). Payments reported here include both CCC payments and lump-sum payments. Begun in 2005, this program provides annual payments over a 10-year period to eligible quota holders and producers of tobacco. However, since its inception, lump-sum payments to individuals have been made through agreements with third parties in return for the producers' and quota owners' rights to the 10-year TTP payment stream. As a result, TTP payments to farmers have steadily declined over the years.
Conservation programs include all conservation programs operated by the Farm Service Agency and the Natural Resources Conservation Service that provide direct payments to producers. Estimated conservation payments of $3.6 billion in 2011 reflect programs being brought up toward funding levels authorized by current legislation. While Conservation Reserve Program payments have remained relatively constant over the last 5 years, fluctuations and increases have occurred in other conservation program payments. These fluctuations are due to the time lags associated with (1) current fiscal-year payments carrying over into the next calendar year, or (2) building up participation in newly authorized or reauthorized programs and phasing out old programs. The Environmental Quality Incentives Program (EQIP) is an example of the former; the Conservation Security Program is an example of the latter.
Disaster program payments are forecast to be $1.6 billion in 2011, a 40-percent decrease from 2010 levels. The 2008 Farm Act created a permanent fund for disaster assistance, the Agricultural Disaster Relief Trust Fund. Supplemental Revenue Assistance Payments from this fund and from the 2009 Recovery Act are expected to amount to $900 billion in 2011. All other disaster programs—including primarily the Emergency Conservation Program, Livestock Forage Program, Livestock Indemnity Program, and Noninsured Assistance Program—are functioning at existing statutory authority and appropriation levels. Once a county is declared eligible for disaster relief, producer participation in these programs depends on the extent to which their crop or livestock losses meet a particular program's threshold.
Whether expressed in nominal dollars or constant dollars, the 2011 forecast of government payments, if realized, will represent the lowest amount paid to producers since 1997. However, government payments as a share of net cash farm income vary by commodity specialization, size of farm, and ERS production region.
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Farm Income Forecasts Grow More Refined Over
19 Months
The periodic farm income forecasts and estimates
published by ERS for a particular year (5 over a span of
19 months) can vary markedly from one release to the
next. For example, the first forecast of 2011 income (in February 2011) has undergone painstaking refinement as new information has become available. Release dates for the updated forecasts correspond with the availability of seasonal data and annual survey results. For example, the August update of annual crop values benefits from preliminary output and yield numbers as reported by producers in the field. Likewise, because the prior-year's (2010's) forecast is converted to an estimate in August, production expenses will be extrapolated from these new estimates and several months of current-year input prices in future updates. Additional refinements in this (August 2011) and the November 2011 releases incorporate harvest, sales, and inventory data. The final forecast of 2011 farm income will be released in February 2012. Ultimately, an estimate of 2011 farm income will be published in August 2012.
Individual components of the farm income accounts
adhere to different timetables and are subject to
varying degrees of uncertainty. For instance, crop
inventory adjustment is a residual component of total
supply (production and beginning-of-year stocks) and use
(domestic and exports). Farm household income is
contingent on many factors (amount of off-farm work
hours and wage rates) that transcend crop and livestock
numbers. Government payments—which are a function of
prices, production, eligibility rules, and ad hoc
disaster legislation—are also hard to forecast with any
certainty, and that uncertainty compounds the margin of
error that measures like net cash income are subject to
from first forecast to final estimate.
Crop and livestock receipt forecasts tighten
significantly as additional price and output data become
available during the forecast period. As a result, by
harvest time, the relative error (between forecast and
actual totals) is generally less than 2 percent for
total cash income and less than 5 percent for net farm
income. Of course, in absolute terms this can amount to
as much as $4 billion across the farm sector. |
See glossary.
See all Farm
Income data files.
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