The USDA Economic Research Service (ERS) is projecting net farm income to be down 38% in 2009, as compared to 2008 net farm income figures. The total net farm income for U.S. farmers in 2009 is estimated at $54 billion, which is a reduction of $33.2 billion from the 2008 level of $87.2 billion. The 2009 forecast is $9 billion below the 10-year average in the U.S. of $63.2 billion/year.

The ERS is projecting the net cash income for U.S. farmers to be down 30% in 2009, as compared to 2008 levels. The 2009 net cash income for farmers is estimated at $68.2 billion, which is down $29.4 billion from the 2008 level of $97.6 billion. The 2009 estimates are about $3 billion below the 10-year U.S. annual average net cash income on all farms. The net cash income is projected to decline less than the net farm income due to the added value of carryover 2008 grain stocks that were liquidated during 2009. The net farm income is based solely on the earnings generated from crop and livestock production that occurred during 2009.

Crop Production
Based on the ERS data, total crop receipts to farmers in 2009 are expected to drop by $18 billion, or 10%, from the 2008 total crop receipts level of $183 billion. The 2009 estimated crop receipts of $165 billion would be the second highest on record, trailing only the 2008 crop receipts. The total U.S. crop receipts posted gains of more than 20% from the previous year in both 2007 and 2008. The 2007 total crop receipts were listed at $152 billion, which was a record at the time; however, that increased by $31 billion, or 21%, in 2008 to $183 billion.

The rise in total crop receipts received by U.S. farmers in 2007 and 2008 was mainly due to sharply higher grain prices received by farmers. Prices of all grain commodities rose sharply late in 2007, and continued in the first half of 2008. Grain prices moderated and dropped later in 2008. After a brief rebound in the first half of 2009, grain prices in the third quarter of 2009 have dropped to the lowest levels since early 2008. Export demand has been considerably weaker in 2009, as compared to 2007 and 2008, putting additional pressure on grain markets.

Livestock Production
According to the ERS estimates, total receipts received by U.S. farmers from livestock production are expected to drop $22.2 billion in 2009, or 15.7%, as compared to 2008 livestock receipts. The 2009 level of livestock receipts is estimated at $119.2 billion, compared to $141.4 billion in 2008. Rapidly rising feed costs in 2008 lead to negative profit margins in most segments of livestock production in 2008. Even though feed prices have moderated in 2009, negative profit margins continue in the livestock sector due to low livestock market prices, resulting from a softening world economy and much lower demand for meat and protein in export markets.

The hog and dairy industries have been hit particularly hard regarding projected reductions in net income from 2008 to 2009. Total hog receipts in the U.S. for 2009 are projected to be down 18%, due to lower hog market prices, which resulted from record hog supplies and declining foreign demand for pork. Even with lower feed costs in 2009, average hog farm expenses are only expected to decline 6% in 2009, as compared to 2008, resulting in an average net cash income for hog farms in 2009 that is 72% lower than 2008 net cash income levels.

The situation on dairy farms is similar, with the average milk price received by farmers in 2009 expected to be near $12/cwt, compared to $19/cwt in 2007. Receipts for milk and dairy products are forecasted to drop by 33% from 2008 levels, while dairy farm expenses are only projected to drop by 5% in 2009, after sharp increases in expenses in recent years. The net cash income for the average dairy farm is expected to drop 94% in 2009, as compared to 2008. The situation is not quite as dire for U.S. beef and poultry producers. The average net cash income for beef farms is expected to decline by 29% from 2008 to 2009, while the one-year net cash income level for poultry operations is only expected to show a 6% reduction from 2008 to 2009.

Farm Expenses
One piece of good news for farm operators in the latest ERS report was that total farm expenses in 2009 are expected to decline $9.2 billion, dropping from $34.8 billion in 2008 to $25.6 billion in 2009. However, the 2009 level of total farm expenses is still 5% above the 2007 total farm expenses of $22.5 billion.

According to the USDA data, total farm expenses averaged about $176,000/farm in 2008, which reflected a four-year increase of 45% in farm expenses from 2005 to 2008. Farm expenses increased less than 9% in the previous five-year period from 1999 to 2003. 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, seed and chemicals.

Average fertilizer costs alone increased by an impressive level of 33% from 2007 to 2008. Farm machinery and equipment costs also rose considerably in 2008 to a total of $11.8 billion in the U.S., with the average farm operation reporting farm equipment costs 40% above 2007. Land costs for both owned farmland and cash rented land have also increased significantly in the past couple of years.

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 kent.thiesse@minnstarbank.com.