How will agriculture financially perform in 2009? Will the recession keep a lid on demand and market prices? Will production expenses continue to rise? When the income and outgo are totaled at the end of this year, will farmers have earned any income? Or will farm household vitality be dependent upon off-farm income?

At first glance, USDA expects 2009 net farm income to be $71.2 billion, down 20% from 2008. Net cash income will not be down as much because it reflects farm commodities produced in 2008 and carried over to 2009 for sale. The statistics are reflected in the latest USDA report on Farm Income and Costs. The USDA economists say the 2008 record farm income was driven by the higher value of crop production, aided by a weak dollar that enhanced export demand. But those factors have reversed.

For 2009 USDA expects 12-13 billion bushels of corn and 3 billion bushels of beans, along with strong demand for grains and oilseeds. Compared to 2008, receipts from grain sales will be down 22%. Wheat income will be down 26% because of lower acreage and reduced exports.

Corn revenue will be down more than 15% reflecting the weaker demand by ethanol refiners and for exports. Soybean receipts will be down more than 6%, in part from the lower price of oil and the lesser willingness to pay high prices for soy diesel. But there are abundant global supplies of oilseeds to meet the demand.

A substantial cut in milk prices will lead the $11 billion decline in livestock receipts, which will be down a total of 8% for the year. Feed costs for livestock producers will be high because of the demand for grains and oilseeds. But softening world economies will result in a lower demand for meats. Beef production will maintain 2008 levels and with falling grain prices, feedlot margins will improve. Cattle prices may move slightly higher, along with hog prices; both are the result of lower production.

While production expenses increased over 14% in 2008, they are expected to drop over 4% in 2009. The $290.6 billion for 2008 expenses would diminish to $277.1 billion in 2009. Compared to gross farm income, expenses make up 79% and that is more than in 2008.

USDA says 10 of its 17 expense categories should fall this year, with feed, fertilizer, fuel, and oil dropping more than $3 billion each. There will be a 3% drop in overall inputs, interest, taxes, and wages, the first time that has happened since 2002. Feed expenses that went up 19% last year will be down nearly 10% this year.

Interestingly, USDA has some difficulty in gauging fertilizer prices. The economists say, “Farmers who did not pre-purchase fertilizer in late 2007 could not avoid the runup in fertilizer prices during the first half of 2008. However, as prices continued to rise through September, farmers probably curtailed purchases. This tendency was reinforced by plummeting wholesale fertilizer prices during the last 3 months of the year. Many farmers probably held off purchasing fertilizer as they waited for retail prices to come down.”

Fuel and oil prices will be down 33% this year following six consecutive double-digit percentage increases. USDA says the fall of fuel prices in the latter part of 2008 is significant because more than 50% of farm fuels are purchased in that part of the year.

While crop input outlays will go down, other expenses will rise, such as cash rents that will climb 7%, interest outlays up slightly, and farm wages up slightly as well. Government payments will be down about $1 billion to $11.4 billion and 27% below the five year average. USDA expects part of the drop to be a result of farmers signing up for the ACRE program that clips 20% off direct and counter cyclical payments.

Summary:
There will be less money in the pockets of farmers at the end of 2009 compared to 2008, with a forecast 17% drop in income, but remaining well above the ten year average. Expenses for crop and livestock production are also expected to decline, but would still be higher than in 2007. Part of the drop in income would be a decline in crop receipts, the first since 1999, after rising 20% each of the past two years. Government payments will also be down to the lowest level since 1997.