According to USDA’s Economic Research Service (ERS), national net farm income—an indicator of U.S. farm well-being—is forecast at $94.7 billion in 2011, up 20% from the previous year’s total of $79 billion and surpassing the previous record of $87.4 billion achieved in 2004. Record revenues from strong livestock markets, coupled with sharp gains in crop revenues (also record high), are expected to offset a $20 billion increase in input costs to account for the forecast higher net returns.
The major drivers behind strong farm income projections are the outlook for record U.S. agricultural exports in 2011 (projected up 16% to $126.5 billion), and continued growth (mandated by federal usage requirements) in the U.S. corn ethanol industry. A recovering global economy (bolstered by particularly strong economic growth in China) is expected to support strong demand for cotton, feed grain, oilseeds, and livestock products. Severe drought in Russia, Kazakhstan, and the Ukraine during their 2010 growing seasons lowered export supplies from those traditional feed grain export markets and helped shift market interest to U.S. feed grains. Meanwhile, continued growth in U.S. corn-based ethanol production and strong livestock prices are expected to push corn and other crop prices steadily higher as they compete for a fixed amount of cropland. As a result, market prices for major program crops are approaching the record or near-record levels achieved in 2008, and have improved the earnings outlook in 2011 for most commodities, but especially for cotton, corn, soybeans, and wheat.
Government farm payments are projected down nearly 13% in 2011 at $10.6 billion as high commodity prices shut off payments under the price-contingent marketing loan and countercyclical payment programs.
Farm production expenses are forecast up 7% to $307.5 billion in 2011, led by higher fuel and fertilizer costs, and increasing outlays for crop insurance. Livestock producers face record feed costs, which could diminish their net return prospects.
Farm asset values—which reflect farm investors’ and lenders’ expectations about long-term profitability of farm sector investments—are expected to rise 6% in 2011 to a record $2,250 billion following a 3% rise in 2010. Farm land cash markets in late 2010 suggest that land values will continue to see gains related to strong crop prices in 2011.
The farm debt-to-asset ratio had been steadily declining since 1998’s value of 16% to a recent low of 10.4% in 2007, before rising to 12% in 2008 and 2009. The ratio is expected to fall in 2011 to about 10.7%.
These data suggest a strong financial position heading into 2011 for the agriculture sector as a whole, relative to the rest of the U.S. economy, which is lackluster in the 2011 to 2012 timeframe. An improving global economic outlook for 2011 is expected to reinvigorate international consumer demand, even if the U.S. economy continues its slump. Signs of this can already be seen as strong demand-led growth, primarily from export markets, has pushed most commodity prices to near record highs in early 2011, and is expected to sustain those high levels well into the 2011 planting season.
This summary was taken from the Congressional Research Service Report R40152 by Randy Schnepf