If US agriculture was one big farm, it would do pretty good in 2007 according the USDA’s Economic Research Service. But of course it is not one big farm, and your operation is one piece of the picture, and your piece may have either red or black color on it. The ERS forecast for the 2007 farm economy was published Wednesday and while it has some interesting statistics, keep in mind it will also be a significant report used in preparation for the 2007 Farm Bill.

The USDA farm economy report projects a $66.6 billion net farm income for the year just beginning; and that is $6 billion above last year, and continues the trend of recent years above the 10 year average. In fact it is $9 billion over the 10 year average. So what is going to make 2007 such a banner year, and are you going to that party?

Crop production:
Corn, beans and wheat prices will be above 2006 prices, along with sorghum and hay which will benefit from the lack of corn to go as far as it needs to go. The ERS prediction certainly expects a significant increase in corn acres, with subsequent declines in soybeans and sorghum. The wheat crop is also expected to be larger, corresponding to recent higher market prices.

In 2007 corn will earn over $30 billion and soybeans will earn $19 billion, both of which are record high amounts. Corn prices are a good $1 more than in 2006, the function of a slightly lower production and a significantly larger demand, both from ethanol refining and from exports. Cash receipts for soybeans are also up because of a $1 higher increase in their value. Helping that is soybean meal’s competition with corn in feed rations. But while corn has risen 38%, bean meal values are up less than 5%.

Livestock production:
The livestock industry will be valued at nearly $126 billion, up slightly from 2006, but below the record high of 2005. This is a steady trend for the past four years, but is $19 billion above the 10 year average. Livestock producers will have a challenge in 2007 because of higher feed costs and reduced profitability. The pork market is already lower than 2006 because of a lot of red meat in the consumer market. However, the same corn that is increasing the value of the crop production sector is reducing the value of livestock production because it creates higher feed costs.

Cash receipts for beef operations should grow about $1 billion this year, and will remain above the magic $50 billion threshold. The beef market is currently responding to dry pastures, expensive corn, large feedlot inventories and heavy cow slaughter. Increased demand will come from Mexico and US consumers. In the pork market, receipts have been more than $14 billion for the past 3 years, but that will be down about 10%, a result of an increased breeding herd, farrowing intentions, higher litter rates, and more hogs coming from Canada.

Production expenses:
Expenses to produce commodities will go up about 6% in 2007, a bit more than in 2006, but less than in 2005. Since 2002, production expenses have risen 30%. The largest increase in production expense will be the $4 billion jump in feed. Miscellaneous expenses will be up $2 billion. Reductions in expense will come in purchase of livestock and in fuel and oil expense.

Crop production expense for seed, fertilizer, and pesticides will be up 5% or $36 billion from last year, with small part of that due to an increase in planted acreage. Seed prices have gone up 74% since 1999 with the help of demand for genetically enhanced seed. Fertilizer costs will be $725 million, which is up 5%, and that is with a 12% reduction in fertilizer costs in the second half of 2006. The 4.5% increase in pesticides will be the largest increase in the past 10 years, and is attributed to the increased cost of petroleum.

Energy costs rose 47% between 2003 and 2006, but should be up only 1% in the coming year. Fuel expenses went up 66% in that same period, but will come down 1% in 2007.

Stakeholder payments:
Payments to landlords, bankers, and laborers will go up $2.7 billion or nearly 6% which continues a trend from 2003. Wage rates are up more than 7%. Cash rent is up 3% and share rent will be up 15% due to higher values for crops. However landlords will sustain a 29% reduction in government payments, following a 38% drop in 2006. Interest costs are $865 million more than last year, reflecting increased debt, but only modest increases in interest rates.

Government payments:
Direct government payments will be slightly over $12 billion, down $4 billion from 2006, and 25% under the five year average. Counter cyclical payments will be only 30% of what they were last year due to higher crop prices. The loan program will be little used due to higher commodity prices.

Income:
For 2007, gross farm income is expected 23% over the 10 year average. Since production expenses are 25% above the 10 year average, that means net farm income will also be above the 10 year average, by an estimated 16%.

Summary:
Commodity prices will be stronger in 2007, but production expenses will be higher as well. However, the total amount of farm income will be up about 10% over 2006 levels according to USDA.