Nearing the end of the calendar year, with snow and ice everywhere to be found, most Cornbelt farmers are frozen to their 2007 records and taxes and their 2008 marketing plans and crop budgets. USDA economists have a good idea of how financial affairs will settle and believe that 2007 net farm income will be $87.5 billion, more than 28% higher than last year, and more than 57% above the 10 year average. We’ll provide the big picture and you compare your farm numbers to the trend.

USDA’s Economics Research Service has compiled a comprehensive look at the financial affairs of farm families, including farm budgetary figures, household finances, balance sheet changes, and all of the bottom line issues that you see at this time of year. The ERS report
is lengthy and we’ll convert it into several installments. First up will be the outlook for 2007 farm income.

Agricultural cash receipts totaled $282 billion, with 50.5% from crops and 49.5% from livestock. Individually crop and livestock income were about $20 billion higher than in 2006. Government payments fell from $15.8 billion in 2006 to $12.1 billion in 2007. Other farm related income (trucking, custom harvest fees) remained steady in the mid-$17 billion range. That put gross cash income at $312.1 billion ($272.5 billion in 2007). Cash expenses (all of your favorite Schedule F deductions) were $226.4 billion, leaving net cash income at $85.7 billion. USDA economists add the gross cash income of $312.1 billion to non-money income (such as the rental value of your farmhouse owned by the landlord) plus inventory adjustment which gives a gross farm income of $341.7 billion. When total expenses of $254.2 billion are subtracted, the result is net farm income of $87.5 billion.

In the category of crop production, feed grains contributed $41.2 billion, which was a 13% increase over 2006 and 24% over the 10 year average. Oilseeds contributed $22.6 billion, 4.4% over last year and 16.5% over the 10 year average. Meat animals contributed $65.3 billion, which was only a marginal increase over 2006, but a 54% jump over the 10 year average. Dairy contributed $35.2 billion, up 11.8% over 2006 and 23.3% over the 10 year average.

In the category of expenses, farm origin expenses were $68.8 billion, up nearly 51% over the 10 year average. Those included such things as feeder pigs bought from a neighbor, the corn and soybean meal you produced and fed to your livestock, and any seed that you saved from the prior year for planting in 2007. Commercial product expenses were up 4.1% over 2006, and 30.4% over the 10 year average. They included fertilizer, pesticides, fuel, and electricity. Other purchased inputs (repairs, machine rental, grain storage, labor) were $59.6 billion, a nearly 48% increase over the 10 year average.

Government dealings included direct payments of $12.1 billion, which was down 3.7% from 2006, but 16.9% above the 10 year average. Other government dealings included property taxes that totaled $9.5 billion, and were up 7.2% over the 10 year average.

Other stakeholders in your operation included labor ($48.6 billion which was up 42.3% over the 10 year average), cash rent to landlords ($10.2 billion, which was up 10.5% over the 10 year average), and interest paid to lenders ($15.6 billion, which was up 13.2% over the 10 year average).

USDA economists said in general 2007 was a good year for most producers of crops and livestock because of high commodity prices. That resulted from strong demand from the biofuels industry and the export market, and farmers had relatively large production to sell at the higher prices. While the biofuels industry is pushing prices upward, USDA says inadequate rainfall in competitor countries reduced worldwide production and lowered stocks. The combination of reduced supplies, higher worldwide income, and the 25% depreciation in the dollar has increased exports and boosted farm level prices.

The Economics Research Service analysts say agriculture has enjoyed a period of exceptional earnings since 2004, with many of their yardsticks recording new highs such as net farm and net cash income, and the value of crop and livestock production. It favorably compares to the early 1970s and late 1980s, and even with an inflation adjustment, 2007 trails only 2004 as the largest economic contribution by agriculture since 1974.

Other than farm operators, landowners, hired laborers, and lenders, there are many other stakeholders who are standing to gain from the good fortunes of agriculture this year. They include commodity processors, elevators, and retailers who either sell products to farm operators or who have marketing contracts to buy from farms and sell to consumers. USDA says family farm operators will collect about 40% of the 2007 contribution that agriculture is making to the US economy. Non family farm operators will get 10.6%, and contractors will get 13.8%. Hired labor will get 17.8%, lenders 9%, and non operator landowners will bet 9.2%.

The 2007 agricultural wealth is not being equally shared geographically. Almost 64% of the production value will be concentrated in two regions, the heart of the Cornbelt, and the myriad of sections of the US that produce and market specialty crops, all the way from Idaho potato country, through the heart of California, South Texas, and Florida. More than 53% of net farm income will be concentrated in those areas, even though they have less than 32% of the US operating farms.

Family farms, where the majority of the business is owned by the operator or his blood and marriage relatives comprise 97% of all farms and contribute over 80% of net value added to the US economy. Operations with more than $1 million in gross sales will contribute almost half of the net agricultural value.

The value of crop production is up more than $30 billion over 2006, with the help of a $33 billion corn crop, a $21 billion soybean crop, and a $10 billion wheat crop. As previously noted those are the function of biofuel and export demand, and large acreage benefiting from generally good weather.

The value of livestock production is forecast at a record $140 billion, and that makes it 5 consecutive years above $100 billion. Dairy receipts will be the highest on record at $35 billion, which is $12 billion above 2006. That is the result of tight world supplies of dairy products, higher incomes in developing nations, and a weaker US dollar. Beef receipts will be a record $50 billion helped by higher slaughter rates and a small increase in export business. Pork receipts will be $14.5 billion from large production and strong exports. Broiler receipts will hit $23.1 billion, helped by a 22% jump in prices from strong exports and falling flock numbers.

Government payments are down 26% from the five year average to $12.1 billion. Direct and Counter cyclical payments will be $5.3 billion. CCP payments will be down $4 billion from 2006, and were only made to cotton and peanut producers this year. Marketing loan benefits will be $1 billion, slightly more than half of 2006, and 99% of it will be going to cotton producers. USDA says 43% of farms received government payments. 7% went to farms with less than $10,000 in sales, which make up 35% of all farms. 16% went to farms generating over $1 million in sales, which make up 3% of farms. Farms in the two lowest sales classes receive 7% of commodity payments and 54% of conservation payments. Farms in the three largest sales classes received 22% of conservation payments and 64% of commodity payments. USDA economists say, “The increasing shares of payments going to the largest farms is due to the increasing size of this class of farms as the value of farm receipts has increased over time and to the increasing concentration of production among the large farms. Rising cash receipts shifts more farms into the higher sales categories while increasing concentration of production increases the share of commodity payments going to large farms.”

Miscellaneous income is even up in 2007 and will contribute 5.4% to the net value added. That includes machine rental and custom work, insurance indemnity payments, agri-tourism and livestock grazing. Those totaled $17.8 billion in 2007, and represented significant income on some operations. Federal Crop Insurance contributed $3.5 billion, with 60% of it in the plains states and 20% going to greenhouse and nursery operations. Agri-tourism accounted for an estimated $1.75 billion, shared by 2.3% of farms.

Production expenses, to no surprise, rose 9.4% to $254.3 billion. That would be a 32% increase since 2002, and a 15% increase since 2002 adjusted for inflation. But compared to 2006, the ratio of expenses to output will be down. The $6.9 billion for feed expense is a 22% jump. Fertilizer climbed 20%, and miscellaneous expenses will be up 9.5%. Crop related expenses will be $37.5 billion, and that makes the fifth consecutive year of a $1 billion-plus increase. Fertilizer expenses will reach a record of $15.9 billion, which is the result of greater corn acreage. Pesticide expense will rise 3.4%, which is a function of the increased cost of petro-chemicals used to manufacture pesticides.

Payments to stakeholders will rise 7.2% in 2007 to a record of $48.6 billion. That includes a 4% increase in wages for hired labor and an increase in the amount of labor used. Also with a 4% increase in cash rent and a 26% increase in share rent results in a 9.7% increase in rent to landowners along with a 22% decline in direct payments to them. And the lender stakeholder will collect additional interest from land and operating loans, primarily from increases in outstanding debt at the end of the year, and only small increases in interest rates.

Fuel prices, adjusted for inflation, have risen 94% since 2002, and farms spend $11.6 billion on fuel in 2007, which is a record amount. Fuel comprises about 5% of production expense, the same as fertilizer, which has also increased due to greater demand from added corn acreage. USDA says about 25% of farms took some action to reduce either fuel expense in 2006 (correct), which included regular engine servicing and reduction of field operations, as well as negotiating price discounts. Fertilizer expenses were reduced by conducting soil tests, reducing application rate, using precision technology, and adjusting plant population, as well as negotiating discounts.

USDA says the farm financial picture also includes 4,000 farms producing biomass for energy production and 14,000 farms earning dividends from investments in ethanol plants.

Summary:
Increased domestic and foreign demand for US farm products resulted in premium prices in 2007 which helped farmers increase their income. Both crop and livestock operations recorded increased receipts, but production expenses climbed as well. Higher costs for fuel, fertilizer, and land costs raised the overall expenses for farm operators, both from increased cost for the product, but also for increased acreage that required application of crop inputs.