USDA Lowers Farm Income Estimates

The downward revision to the 2009 forecast is due partly to the fact that the price outlook for some commodities—especially for beef cattle, hogs, and poultry—has weakened considerably since February. The new forecast also reflects revisions to farm income estimates that were released earlier in August, which largely reflect information obtained from the 2007 Census of Agriculture. The earlier data release featured revised farm income estimates for 2005 through 2008. As it turns out, not only are farmers expected to make less money in 2009, they also made less money in past year than previously thought. Net farm income for 2007, in particular, was not nearly as high as previously estimated, with the official USDA estimate now at $71.1 billion, down from the previous estimate of $86.8 billion.

The USDA's annual net farm income figures are truly "estimates," since the USDA relies on annual surveys that do not provide all the information needed to provide the exact figure. The Census of Agriculture, conducted every five years, provides survey data that provide a more complete picture. Farm income estimates often are subject to substantial revisions after a census is conducted, and the 2007 Census of Agriculture is no exception.

The extent of revisions varies for each year, with 2006 showing little change, while 2007 shows an 18% decline. In contrast, the estimate of cash receipts for 2007 was actually revised upward by $4 billion; the increase in revenue was more than offset by a $13 billion increase in production expenses. The expenditure categories of feed, seed, pesticides, hired labor, and miscellaneous expenses showed some of the biggest upward revisions. Fertilizer, which is a major expense item and one that has been quite volatile in recent years, was revised upward for 2007, but then downward for 2008 and 2009.

In addition to some of the higher-visibility categories of farm income, the overall net farm income picture was also influenced by a downward revision to non-cash income. The USDA defines non-cash (or non-money) income as "the value of home consumption of farm products plus the imputed rental value of operator dwellings." This category, along with farm-related cash income, tends to be rather elusive and subject to revision. From an accounting standpoint, it certainly is appropriate to account for such costs and revenues, but those line items may not be as relevant in assessing the financial health of the sector. Some users of farm income data prefer to focus on net cash farm income (which excludes non-cash income and changes in the value of inventory), rather than net farm income, because net cash farm income provides a clearer read on the true level of economic activity in the sector during a given year.