On the whole, farm income in 2008 will be up substantially, because of a 17% increase in crop income. But hidden in that USDA forecast is a 2% decline in livestock income. That is the essence of USDA’s expectations for agriculture this calendar year, but what about the facts? We’re glad you asked!

USDA’s Economics Research Service says the 2008 farm economy will be driven by a strong demand for feed crops, oilseeds, and food grains. The ERS projections call for agriculture to contribute $144.1 billion to the national economy, a 38% increase over the ten year average. Net farm income will be $92.3 billion, up 4.1% over 2007, and 51% over the ten year average. Net cash income is expected to rise $9 billion to $96.6 billion because of the large carryover of 2007 crops sold in 2008.

The big news is crop production being estimated at $175.5 billion in value, up 17% over 2007 with the help of high commodity prices for corn, beans, and wheat. Over $90 billion is from feed grains and oilseeds. However, the other shoe falls with the livestock projection of a 2.7% decline in cash receipts. That is an abrupt change, following the 22% increase between 2006 and 2007. USDA forecasts market value declines in all livestock species, except level receipts for sheep and lambs, and a .1% rise in the value of miscellaneous livestock.

Higher farm income is a function of higher commodity prices, resulting from a strong demand for grains and oilseeds used also in the bio-fuels industry, as well as a strong export demand. The decline in global stocks fostered the export demand along with a decline in the value of the dollar, which lessened the relative cost of US commodities.

Along with higher commodity prices are higher production costs. Those expenses are expected to exceed the 10 year average by 34%, offsetting the increased income. Net cash income will be up over 10% from last year. ERS says, “Net cash income (cash income earned after out-of-pocket expenses) is money available to pay debt obligations, taxes, and family living expenses. It is an indicator of the farm sector's cash flow and liquidity.”

Production expenses rose over 10% going into 2007, and will rise another 9% going into 2008. If they rise as expected, production expenses will equate to 75% of gross farm income and the 6th straight annual gain. Among the higher expenses:
1) feed expenses (feed grains and soymeal) will be up more than 18%.
2) Seed expense will be up 4%
3) Fertilizer will be up 18% after a 20% rise a year ago.
4) Fuel and oil expense will be up more than 12%.

Payments to land owners, laborers, bankers, and other stakeholders will be up nearly 6% from last year. Direct government payments will be up $13 billion from last year, but 20% below the five year average.

The past 4 years have provided exceptional earnings for most of agriculture, with net farm income setting records in 3 of 5 years. But the picture is not rosy for everyone. While the Cornbelt is the greatest beneficiary because of corn, bean and wheat income, the southeast and Mountain states are suffering drought and will have less to sell. A cold Florida winter hurt the citrus crop, and despite the lack of assessment, revenue will be down.

Summary:
Most measures of agricultural earnings predict that 2008 will be a banner year, with higher expectations for net income and higher commodity prices. But production costs will be up substantially, particularly for feed, seed, and fertilizer. But along with the higher costs for feed grains, is an expectation for lower income from livestock operations.