Farm Progress

Policy Report: While farm income has declined since the highs of 2013 and is expected to remain fairly stable through 2020, it is up substantially over historic levels.

Bradley D. Lubben

January 2, 2018

5 Min Read
INCOME DECLINE: Recent economic forecasts have pegged 2017 farm income in Nebraska at $4 billion — down almost 50% from the peak levels of $7.5 billion in the state in 2011, and again in 2013.

Recent Nebraska economic forecasts have pegged 2017 farm income in the state at $4 billion, down nearly 50% from the peak farm income levels of $7.5 billion in the state in 2011 and again in 2013. The outlook for the coming years does not offer much relief either as projections only show modest growth in income through 2020.

With the sharp farm income decline since 2013 and the corresponding financial challenges of cash flow, liquidity and profitability, it may be easy to see only the declines of recent years and forget the growth and impact of ag in the state over time.

Embedded in the historical farm income statistics from USDA's Economic Research Service and the forecasts here at the university building off of that data is a tremendous insight into the economic strength of the ag sector. Total production value, value added, returns to investments and net farm income have all grown substantially over the past 15 years even when measured at current levels below the recent highs.

Comparing Nebraska farm income statistics from 2002 to 2007 essentially tracks a 15-year period from the low of the last farm income downturn to the present downturn (technically 2016 is estimated to be the bottom of the current downturn in terms of profitability). The numbers are all in nominal terms, with final data through 2016 and projections for 2017 and beyond, but they provide a good picture of a growing and vibrant Nebraska agricultural sector.

Crop production value in 2002 was limited to $3.1 billion from a combination of low prices and drought-impacted production, but it was representative of the period as crop production had only reached above $4 billion twice prior to 2003 (in 1997 and 1997). By comparison, crop production grew to more than $13 billion at the peak in 2013 (in part due to irrigation-sustained production at drought-influenced high prices) before falling to present levels, but is still more than $8.5 billion as of 2017.

Livestock production grossed $5.7 billion in 2002 after more than a decade between $5 and $6 billion. Livestock revenue grew to more than $14 billion in 2014 at the peak of livestock prices, but is still nearly $13 billion for 2017. In total, gross revenue in the ag sector (including some other farm-related income) grew from less than $10 billion to more than $23 billion from 2002 to 2017 even after accounting for the declines since 2013.

This added output and value obviously also came along with higher expenses. Direct input costs rose from $6.7 billion in 2002 to $13.5 billion in 2017, representing higher input and energy costs, but also the higher values for feed and livestock purchases that contributed to the gross livestock revenues above. Sure to catch ag's attention is the fact that taxes and fees (more than 95% property taxes) have risen from $424 million in 2002 to $1.2 billion in 2017, nearly tripling this line item on the budget. Capital consumption (estimated depreciation) has also risen to more than triple earlier levels, from $654 million in 2002 to $2.1 billion in 2017. It can be difficult to parse out the portion of this increase that represents increased machinery costs vs. increased purchases after recent record profits vs. tax management decisions, but costs have clearly increased substantially over the past 15 years. All told, total expenses have climbed about $9 billion from $7.8 billion to $16.9 billion between 2002 and 2017.

With revenues up more than $13 billion and expenses up about $9 billion, the net value added by agriculture in Nebraska stands more than $4 billion higher than it did 15 years ago, growing from $2.5 billion in 2002 to $7.1 billion in 2017. Besides the expenditures above that add up in other sectors, this value added represents the substantial economic output that ag produces and contributes to the state's economy. That value is parceled out to what economists call the factors of production, namely land, labor, and capital, generating returns on the investment of each of those factors. Labor costs and interest expenses have both gone up substantially since 2002, but land costs (rents paid to landlords) have increased the most, more than doubling from 2002 to 2017.

Those factors of production have claimed approximately $1.5 billion of the $4.6 billion in increased value added, leaving about a $3.1 billion in increase in net farm income in Nebraska from just $866 million in 2002 to the estimated $4 billion in 2017. This net farm income contributes to the well-being of the farm household and reflects the returns to owner-operator/family labor, land, investment, and management.

As noted in the beginning, Nebraska farm income is down from its peak levels of 2011 and 2013, but it is up substantially over historical levels. It isn't just the $4.6 billion gain relative to the last trough in 2002, it is substantially higher than the $2.4 billion average from 2001-2005 and even the more recent average of $3 billion in 2006-10.

Previous research at the university has documented the substantial economic impact of agriculture on the state. The direct agricultural output multiplies through the value-added processing and manufacturing sectors and contributes to business and retail activity in the supply and output chains as well as main streets and retail across the state. Altogether, the ag impact has been measured by university researchers at around 1 of every 4 jobs in the state. With this impact, it is obvious that the growth of the ag sector over the past 15 years and the sustained economic performance of the sector looking forward is important not only to rural Nebraska, but to all of Nebraska.

As the earlier discussion also alluded to, the outlook is only for stable to modest growth in farm income between $4 and $4.5 billion through 2020, given current market projections and continued increases in productivity, output, economic growth, and demand. Of course, the economic projections are never good at predicting the next shock, whether it be a production shock, a demand shock, or even a policy shock. But even at relatively stable income projections, it is important to remember the growth and economic contribution ag has provided to the state and keep building on that strong base.

Lubben is an Extension policy specialist at the University of Nebraska-Lincoln.

 

About the Author(s)

Bradley D. Lubben

Lubben is a Nebraska Extension associate professor, policy specialist, and director of the North Central Extension Risk Management Education Center in the Department of Ag Economics at the University of Nebraska-Lincoln. He has more than 25 years of experience in teaching, research and Extension, focusing on ag policy and economics. Lubben grew up on a grain and livestock farm near Burr, Neb., and holds degrees from UNL and Kansas State University.

Subscribe to receive top agriculture news
Be informed daily with these free e-newsletters

You May Also Like