The U.S. Department of Agriculture is predicting that farm income in 2008 will be strong, perhaps higher than 2007 which was a record-breaking year. The USDA's Economic Research Service provides forecasts of farm income and expenses each year.
For 2008, income is forecast to be $92.3 billion, the USDA reports, up 4.1 percent above the $88.7 billion farmers are estimated to have earned in 2007 and 51 percent above the 10-year average of $61.1 billion. Anticipated increases are expected to be a result of increased crop production; however livestock production is expected to decline, but still remain above average.
A new demand for certain major crops, in particular corn and soybeans, is being driven by the use of the crops in the production of biofuels. In addition, a reduction in global food supplies is adding to the demand for U.S. farm commodities.
The USDA is also predicting an increase in production costs for 2008. "The rise in commodity prices boosts gross farm income, which is forecast to rise 7.5 percent in 2008 and to be 38 percent ($103 billion) above its average over the prior 10 years (1998-2007). Production expenses are forecast to exceed their 10-year average by 34 percent ($71 billion), partially offsetting the rise in gross farm income. Net farm income is the difference between gross farm income and production expenses. As a consequence of revenues increasing more than expenses, net farm income in 2008 is forecast to be 51 percent ($31 billion) above its 10-year average," according to a USDA report.
Not all farmers will benefit from the anticipated increases in income. "Because of the diversity of production in U.S. agriculture, change is not equally distributed over commodities or regions. States that are leading producers of corn, soybeans, and wheat stand to benefit the most with prices for their production rising faster than most other commodities and their expenses rising roughly in line with those for other crops. Thus, the Midwest and Corn Belt should be the big beneficiaries. Livestock producers are expected to experience greater increases in production expenses than crop producers due to their heavy reliance on feed. Feed prices should be propelled upward by the rise in prices for feed grains and oil crops," the USDA reports.
"A number of States in the East, Southeast, and Mountain regions are experiencing drought. For the most part, these States do not account for enough farm production to have a major impact on national farm income measures. However, farmers in regions with significantly lower levels of production benefit less from high commodity prices since they have less to sell.
"Farmers in these regions are also typically seeing a greater rise in production costs for such things as irrigation and feed/hay. When gross farm income is lower and production costs are higher, net income for individual producers can quickly turn negative for operations mired in drought conditions.
"A winter cold snap in Florida has reduced its citrus crop, but the extent of production loss is not yet known. Any loss in supply will likely see a corresponding rise in market prices available to those producers who have commodities to sell. Consequently, the effects on farm income at the national level are not likely to be substantial, even though it could be significant for those producers hit hardest by the damage to both fruit and trees."