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Modest farm income uptrend seen next 3 to 5 years

In a reversal from 2002, increases from crop and livestock receipts and government payments are expected to boost farm earnings this year, according to Ashok Mishra, agricultural economist with USDA’s Economic Research Service.

"Taking into account USDA’s expected crop and livestock market developments, we anticipate that farm household incomes will follow a modest, but increasing trend over the next three to five years." Both farm and non-farm sources are expected to contribute to the increases.

Reporting on work with fellow ERS analysts, Mitchell Morehart and James D. Johnson, Mishra told those attending the annual USDA Agricultural Outlook Forum at Arlington, Va., that the agency "expects the financial picture to look promising for most farmers and ranchers in 2003.

Market receipts, government payments, and production expects are projected to translate into an increased contribution of value added to the U.S. economy of $90.8 billion this year.

"After accounting for payments to a variety of resource owners, such as landowners and creditors, income/business profits for farm owners and operators will total $44.9 billion, near the previous 10-year average of $45.34 billion," Mishra says.

Steady growth

"We expect both crop and livestock receipts to exhibit a steady growth pattern in the upcoming three to five years. In particular, livestock receipts will bounce back from last year’s low levels, exceeding the $106 billion level of 2001. Improvements in receipts will increase gross income and boost support for net cash income and farm profits."

Net cash income is expected to remain in the low to mid-$40 billion range over the next three to five years.

USDA expects farm households to be in "an improved economic condition" in 2003, Mishra says, based on changes projected in household earnings and in asset values, notably assets owned by farm families.

"Fewer farm households will have low income and low levels of net worth in comparison to all U.S. households. With both farm business profits and cash flow increasing and business asset values — particularly land — continuing to rise, more households will have higher incomes and wealth than in 2002."

Across all farms, business net cash income and net farm income are expected to rise by nearly 12 percent this year. Increases in gross income, driven by improved crop and livestock receipts, government payments and earnings from activities such as machinery hire and custom work, will be "more than enough to overcome higher expenditures for inputs bought from other sectors," Mishra says.

In absolute terms, the largest increase in cash income ($9,700 per farm) will be for the nation’s 243,000 commercial-sized farms, boosting net cash income to an average $131,000 per farm, still below the $155,000 to $175,000 expected over the next three to five years.

Percentage leader

From a percentage standpoint, the largest increase in 2003 is expected for households of intermediate-sized farms, projected at 16 percent. The 660,000 farms in this group will look to earnings from off-farm employment and business activities to underpin household income.

Income is expected to increase most for wheat, soybean, and mixed grain operations, with improved prospects also for livestock (excluding dairy, which will continue to erode in 2003). Tobacco, cotton, and peanut producers are forecast to experience the least favorable outcome, with income increasing this year, but remaining below 2001 levels.

"The pace of signups for the new farm bill is having a major impact on farm income in both 2002 and 2003," Mishra says. Because signups have been much slower than expected, farmers will receive much of the 2002 direct and counter-cyclical payments in calendar 2003.

Total production expenses this year are projected to rise $7.5 billion (3.8 percent), the largest increase since 1997, but similar to 2001.

"The initial expectations for 2003 suggest a general rise of 4 percent to 6 percent across a wide range of inputs, with the largest a 9 percent increase for fertilizer. The only expense that will fall in 2003 will be interest, with little, if any, change expected in farm loan interest rates."

After falling $14 billion in 2002, the outlook for commodity market receipts, production expenses, and government payments this year will translate into a net value added to the U.S. economy similar to that recorded in 2001.

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