Income Outlook and Financial Circumstances Are Forecast Down from 2011 But Medium-Term Performance Varies Widely Amongst Farm Business
Average net cash income for farm businesses (intermediate and commercial operations, including nonfamily farms) is projected to be $66,900 in 2012 (see table), a 17-percent decline from the 2011 forecast of $80,600. Despite this decrease, average farm business income is still at a relatively high level, decreasing less than 5 percent from average income during 2008-11. Although net cash income is projected to decline for all types of farm businesses in 2012, performance relative to the prior 4-year average is more varied. Most farm businesses specializing in program crops will experience either an increase or a slight decline in income from the 2008-11 average. Businesses specializing in non-program crops will experience declines, on average, in 2012 from 2011 as well as from the 2008-11 average. Livestock farm businesses will also see a decline in average net cash income in 2012. However, except for poultry and "other" livestock, livestock farm businesses will experience higher net cash income than the 2008-11 average. These results are largely due to increases in expenses combined with slight increases or modest declines in receipts.
Changes in net cash income vary considerably across commodities and regions, especially when compared to the past 4 years. (Net cash income is calculated as total farm receipts less expenses, and is different from net farm income (profit) as it does not take into account income tax obligations, changes in inventory value, and appreciation in the value of capital goods. Net farm income is often higher than net cash income because farm businesses use various strategies to manage income tax liabilities.) Differences in income prospects also reflect the considerable variation in business structure, including the extent to which assets are owned, the mix of crop and livestock produced, the contribution of government payments to gross income, and the relative importance of energy inputs and borrowed capital to production costs. Several classifications of farm businesses—including commodity specialization and geographic location—reflect this diversity.
On average, program crop farm businesses will likely experience an increase in expenses of almost 3 percent in 2012, and varied levels of growth in receipts are driving differences in forecast net cash income. Other than cotton and rice farm businesses, which are expected to experience an average decline in crop receipts of 1 percent, all other program crops should see average increases in crop receipts of 1 to 2 percent. Almost all expenses are forecast to increase in 2012. Seed and fuel expenses are expected to increase by 0.7 and 1.2 percent, respectively, while fertilizer expenses are expected to decrease by 0.1 percent. Together, these inputs account for 48-56 percent of average cash expenses for program crop farm businesses. Rent payments are expected to increase approximately 5 percent, on average, for program crop farm businesses, and account for 10-20 percent of total expenses.
Non-program crop farm businesses are forecast to have larger declines in average net cash income, driven by a decrease in crop receipts as well as increases in expenses. Most specialty crop farm businesses (fruits, vegetables, and nursery/greenhouse) are expected to face lower prices and a decrease in net cash income of 26 percent, on average. Specialty crop receipts are expected to decrease by 2.7 percent and expenses are forecast to increase by 4.3 percent. Labor is a large share of specialty crop farm businesses' expenses (36 percent of total expenses), and labor expenses are forecast to increase 6.2 percent in 2012. Other field crop farm businesses (sugar crops, hay, silage, trees, and woody crops) are expected to experience a 24-percent decline in net cash income, on average, driven by a slight decrease in crop receipts and a 3.5-percent forecast increase in expenses.
After substantial gains in net cash income in 2010 and 2011, dairy farm businesses are forecast to experience an almost 27-percent decline in 2012. However, average net cash income should still be 13 percent higher than the 2008-11 average. Weakening prices are expected to contribute to a 6-percent decline in dairy receipts, and forecast expenses are up 3.7 percent. Dairy exports are forecast to decline, production is expected to increase, and prices are expected to decline for most dairy products. Dairy farm businesses will be especially affected by an expected increase in feed prices of 3.5 percent, as feed makes up 45 percent of total expenses.
Although average net cash income for beef cattle farm businesses is expected to decrease 21 percent in 2012, net cash income should be almost 5.5 percent higher than the 2008-11 average. Prices are forecast to increase in 2012 due to tight supplies and strong demand, with little change expected in export levels from 2011. The cow-calf herd is expected to continue its decline in 2012, as it has since the mid-1990s. In 2011, drought in Texas and neighboring states prompted many farm businesses to decrease herd size. Although cattle receipts are forecast to decline by less than 1 percent due to the production decline, expenses are forecast to increase by 2.7 percent.
In response to higher feed costs, broiler production is expected to decline in 2012. Prices for most poultry products are projected to be above 2011 levels, but prices are expected to decline for eggs. Average poultry receipts for poultry and egg farm businesses are forecast to be near their 2011 level. With higher prices projected for feed (42 percent of total cash expenses), average net cash income is projected to fall by almost 17 percent in 2012 for farm businesses that specialize in poultry. Average net cash income in 2012 is expected to be 25 percent lower than the 2008-11 average.
Much like the rest of the livestock sector, exports have become an important outlet for U.S. pork production. In 2012, pork exports could represent as much as 22 percent of domestic production, about the same level as 2011. Production is expected to slightly exceed last year’s level and, with a slight price decline, hog receipts are forecast to be almost the same as in 2011. With a 3.2-percent projected increase in cash expenses (particularly feed, which represents 30 percent of total operating costs), average net cash income is projected to be almost 10 percent lower than in 2011. However, hog farm businesses’ earnings are still at much higher levels than in previous years, as average net cash income is projected to be 44 percent higher than the 2008-11 average.
There is considerable regional disparity in the outlook for 2012 farm business income, although all regions are expected to experience losses from 2011. There is even more disparity between the forecast for 2012 farm business income and the average for 2008-11 (see map). Except for the Southern Seaboard and Eastern Uplands, 2012 performance is expected to be better when compared to the 2008-11 average as opposed to 2011 alone. Sustained price strength for grains and oilseeds as well as hogs and beef cattle will likely result in higher average net cash incomes than the past 4 years for farm businesses in the Heartland, Northern Great Plains, and Prairie Gateway. Given significant expected declines in poultry and non-program crop income, the Eastern Uplands and Southern Seaboard are expected to experience net cash incomes in 2012 that are 38 and 26 percent lower, respectively, than the 2008-11 average. With lower dairy earnings, farm businesses in the Northern Crescent region are expected to experience a 14-percent decline in average net cash income from the 2008-11 average. Lower specialty crop income is expected to contribute to a 14-percent decline in average net cash income from the 2008-11 average in the Fruitful Rim.
Projected net cash income varies considerably by size of farming operation. Commercial operations (sales greater than $250,000), which represent about 12 percent of farms and over 80 percent of production, are expected to experience a 16-percent decrease from 2011 in average net cash income. However, the 2012 forecast is less than 2 percent lower than the 2008-11 average. Intermediate farms (primary occupation of farming and gross sales below $250,000) are projected to have incomes about 33 percent lower than in 2011. Many intermediate farms specialize in livestock production. About 60 percent of U.S. farms are classified as rural residences—operators of which typically earn most of their household income from off-farm sources. The vast majority of rural-residence farm operators were employed off-farm prior to becoming a farmer, with a much larger share of both operators and their spouses having off-farm jobs. The farm operations of these households (which are excluded from calculations of average farm business income) have for many years averaged a negative net cash income, with 2012 no exception.
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