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For 2006: Net farm income expected lower

U.S. net farm income is forecast to be $58.9 billion in 2006, down from $73.8 billion in 2005, but slightly above the 10-year average of $57.2 billion, according to a report from USDA's Economic Research Service.

The primary reasons for the anticipated decline are a drop in the value of livestock production and direct government payments combined with an increase in the cost of purchased inputs.

Net cash income is forecast to be $66.6 billion in 2006, a decline from the high levels achieved in 2004 and 2005. Family farm operator household income is expected to decline 0.9 percent in 2006, as the decrease in farm income more than offsets an increase in off-farm income.

Farms are expected to contribute $107.6 billion in net value-added to the U.S. economy in 2006, substantially down from the 2004 peak year of $128.9 billion. Net value added is the sum of net farm income and payments made to agriculture's stakeholders (lenders, hired labor, and nonoperator landlords).

The value of production in the U.S. farm sector is forecast to be $279.5 billion in 2006, up $4.1 billion over 2005 and well above the 10-year average of $237 billion.

The value of crop production is projected to be up $7.1 billion over 2005, primarily from higher projected corn prices and stronger sales of vegetables, fruits and nuts, and greenhouse/nursery products.

The value of livestock production is expected to be down $4.7 billion from 2005, but still $18.9 billion above the 10-year average. Farm gate prices for most major livestock products are expected to fall from 2005, with milk prices declining the most.

Total direct government payments are expected to be $16.5 billion in 2006, down from the $24.3 billion for 2005. This payment total is nearly 4 percent below the five-year average. Payments under the direct and counter-cyclical program in 2006 are estimated at $5.2 billion, less than a 1 percent increase from 2005.

Total production expenses in 2006 are forecast to rise $11 billion (5 percent) to a record $237.3 billion. The percentage change is less than in 2005, but continues the increase in total production expenses that has occurred in each of the last four years. Since a decrease in 2002, total expenses in current dollars will have risen $43.8 billion (22.7 percent). Through October 2006, prices paid overall for crop sector inputs had risen faster than for livestock sector inputs.

Farm sector equity is expected to rise by about 7 percent in 2006, as the value of farm assets continues to rise more rapidly than farm debt, driven mostly by increases in farmland values. Debt-to-asset and debt-to-equity ratios continue to improve in 2006, compared with the first half of this decade and average performance over the past four decades.

Average farm household income is expected to decline 0.9 percent in 2006 to $80,703, with the decrease in farm income more than offsetting the increase in off-farm income. For every year since 1996, average income for farm households has exceeded average U.S. household income; during 1996-2005, the average difference was 15.2 percent.

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