An Assessment of Farm Income, Debt Repayment

Capacity, and Size Distribution of Farms

Briefing for the Conservation Technology Information Center Board of Directors

Washington, D.C. October 27, 1999

James Johnson & Mitchell Morehart

Resource Economics Division, ERS, USDA

Presentation Outline

Farm Income

Farm Debt & Repayment Capacity

Size Distribution of Farms

Occupation, Off-Farm Work & Typology of Farms

1.5

2

2.5

3

3.5

4

1991 1992 1993 1994 1995 1996 1997 1998 1999

3.5

4

4.5

5

5.5

6

6.5

7

7.5

8

1991 1992 1993 1994 1995 1996 1997 1998 1999

2

2.5

3

3.5

4

4.5

5

1991 1992 1993 1994 1995 1996 1997 1998 1999

Corn

Wheat

Soybeans

Low commodity prices have increased concern for the financial heath of agriculture and viability of family farms.

0

20

40

60

80

100

120

1995 1996 1997 1998 1999f

Corn Soybeans Wheat All other crops

$111.1

Crop cash receipts--1999 cash receipts for corn, soybeans, and wheat are expected to be more than 25 percent below 1997 levels

$102.2 $95.7$106.2$101.0

46.444.6 39.541.9 34.2

59.1 61.6 64.7 62.7 61.5

$Billion

0

20

40

60

80

100

120

1995 1996 1997 1998 1999f

Cattle Hogs Poultry Dairy All other livestock

$96.5

Livestock cash receipts--1999 cash receipts for hogs are expected to be about 32 percent below 1997

$94.5 $96.0$93.0$87.1

9.013.1 9.412.611.8

$Billion

Commodity price trends are not indicative of farm income

U.S. Net Cash Income and Calendar Year Average Corn Price, 1910-99f

0

0.5

1

1.5

2

2.5

3

3.5

4

1910

1914

1918

1922

1926

1930

1934

1938

1942

1946

1950

1954

1958

1962

1966

1970

1974

1978

1982

1986

1990

1994

1998

0.0000

10.0000

20.0000

30.0000

40.0000

50.0000

60.0000

70.0000

Corn (dol. per bu.) Net cash income (bil.)

0

5

10

15

20

25

1996 1997 1998 1999f

AMTA Loan Deficiency CRP & Other Emergency Assistance

Historical High ($16.7 billion, 1987)

2.1

6.6

5.1

1.8

$7.4 $7.5

$12.2

Emergency assistance puts calendar year 1999 direct government payments at new high

6.1 6.0

$22.5

8.7

6.0

1.6

2.8

10

20

30

40

50

60

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998

$ Billion

Nominal

Real (1992$)

(1990-98 Average)

1999 net farm income rebounds to near 1997 level

$48.0

Northern Crescent 2%

Heartland -1 %

Mississippi Portal 3 %

Projected change in average farm businessnet cash income, 1998-99

Northern Great Plains 19%

Prairie Gateway 17%

Basin and Range 7 %

Southern Seaboard -10 %

Eastern Uplands -3 %

Fruitful Rim 0 %

Change in Net Cash Income by Type of Farm Operation, 1998-99

Change inFarm Type Net

IncomeKey Determinants of Change

Percent

Other Cash Grains 8 Crop receipts down 11%; Payments up; Expenses flat

Wheat 48Crop receipts down 12 %; Livestock Receipts up 4%; Payments up; Expenses flat

Corn -1 Crop receipts down 11%; Payments up; Expenses up 3%Soybean 0 Crop receipts down 12%; Payments up; Expenses flatCotton,Tobacco,Peanuts -14

Crop receipts down 13%; Payments up; Expenses up 2%

Other Crops -1 Crop receipts down 7%; Payments up; Expenses up 3%Specialty Crops 0 Crop receipts up 1%; Payments up; Expenses up 3%Beef cattle 19 Livestock receipts up 6%; Crops down 10%; Feed down 3%Hogs -5 Livestock receipts down 3%; Expenses up 1%Poultry 1 Receipts flat; Expenses flatDairy 0 Livestock down 1%; Payments up; Expenses flat

0

200

400

600

800

1000

1200

1960 1965 1970 1975 1980 1985 1990 1995

$ Billion

Equity

Debt

Assets

Equity growth to continue in 1999 with most rise in assetvalues and small decline in farm debt

Source: USDA/ERS

Year-to-year changes in farm debt, 1970-1999f

1970 1974 1978 1982 1986 1990 1994 1998

-5

-15

-10

0

5

10

15

20

25

Percent

0

5

10

15

20

25

NorthernGreat Plains

PrairieGateway

MississippiPortal

Fruitful Rim All farmbusinesses

1997 1998 1999f

Fewer farm businesses are expected to experience debt repayment problems in 1999

Percent of farms withDRCU of 2.4 or higher

63.4

18.0

12.5

6.1

59.4

20.7

12.2

7.8

67.9

16.9

11.1

4.1

65.4

17.8

11.2

5.6

62.1

19.9

12.3

5.7

Favorable Marginal Income Marginal Solvency Vulnerable

Distribution of farm businesses by overall financialperformance, 1994-98

1994-97

1998

1850 60 70 80 90 1900 10 20 25 30 35 40 45 50 54 59 64 69 74 78 82 87 92 971,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

100

200

300

400

500

600

Census Year

Thousand farms Acres per farm

Number of farms(left axis)

Size(right axis)

Source: Census of Agriculture, various years.

Number of farms and acres per farm, 1850-1997Number of farms decreases since 1935 while the size of farms increased

1900 10 20 25 30 35 40 45 50 54 59 64 69 74 78 82 87 92 970

10

20

30

40

50

60

70

Census year

Changing farm size in U.S. agriculture, 1900-97

Percent of farms

50-499 acres

1-49 acres

500 or more acres

Source: USDA, ERS, based on Census of Agriculture data.

Distribution--by sales class--of farms, acres operated, and value of production, 1997Farms with sales of $500,000 or more made up only 3 percent of all farms but accounted for 44 percent of production

Less than $10,000

$10,000 to $49,999

$50,000 to $99,999

$100,000 to $174,999

$175,000 to $249,999

$250,000 to $499,999

$500,000 or more

0 10 20 30 40 50

50.2

24.0

9.1

6.5

3.5

4.0

2.6

12.9

18.2

16.9

14.0

11.4

12.1

14.4

1.7

7.1

9.4

10.9

10.4

16.4

44.1

Farms

Acres operated

Value ofproduction

Percent of total

Source: USDA, Economic Research Service, 1997 Agricultural Resource Management Study.

Distribution--by occupation of operator--of farms, acres operated, and value of production, 1997Farms operators reporting farming as their major occupation account for most farming activities

Farming

Hired farm manager

Other occupation

Retired

0 20 40 60 80 100

37.2

1.2

42.6

19.1

67.2

5.7

16.6

10.5

75.2

11.4

10.1

3.3

Farms

Acres operated

Value ofproduction

Percent of total

Source: USDA, Economic Research Service, 1997 Agricultural Resource Management Study.

Farm operators reporting off-farm work, 1930-1997One-third of farm operators have worked off-farm essentially full-time since the 1970's

*Data for 1974 are unavailable.

Source: U.S. Bureau of the Census, 1930-92 Censuses of Agriculture; U.S. Department of Agriculture, National Agricultural Statistics Service, 1997 Census of Agriculture.

1930 35 40 45 50 54 59 64 69 78 82 87 92 970

10

20

30

40

50

60

Census year*

Percent

1 to 99 days 100 to 199 days 200 or more days

Share of farmsand value of production by farm typology group, 1996Large and vary large family farms account for 57 percent of the value of production

0

10

20

30

40

50

14.513.0

26.7 26.1

9.6

4.82.9 2.4

1.0 1.23.8

9.5

19.6 19.5

37.2

8.2

Percent of farms or production

Farms

Value ofproduction

Source: USDA, Economic Research Service, 1996 Agricultural Resource Management Study, version 1.

Limited-resource

Retire-ment

Residential/lifestyle

Lower- Higher- sales sales Farming occupation

Large Very large

Nonfamilyfarms

Small family farms(sales less than $250,000)

Other family farms

Average operator household income by source and by farm typology group, 1997Households operating limited-resource, retirement, residential/lifestyle, and lower-sales farms depend on off-farm sources for most of their income.

Thousanddollars per household

Note: Operator household income is not estimated for nonfamily farms.

* = CV for the farm earnings estimate is greater than 75 percent.

Source: USDA, Economic Research Service, 1997 Agricultural Resource Management Study.

0

50

100

150

200

Farm earnings Off-farm earnings Total household income

Limited-resource

Retirement Residential/lifestyle

Farmingoccupation/lower-sales

Farmingoccupation/higher-sales

Large Very large

Small family farms(sales less than $250,000)

Other family farms

* *