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Fed: Farm sector strong despite economic downturn

Agriculture.com Staff 12/16/2008 @ 12:17pm

The word of the year for 2008 may well end up being "high."

Input costs were high, but so were farm incomes, says a recent USDA-ERS report. But, that doesn't mean the farm economy's quite bulletproof heading into 2009, federal farm economists warn.

In the agency's Agricultural Income and Finance Outlook, released last week, a stable of USDA economists say that 2008 will be remembered, at least for agriculture, as a year with two major themes: "A large increase in the value of crop production but rising costs of production as well," according to the ERS ag income report. In all, the value of '08 U.S. crop production is pegged at $181 billion, a record and 20% rise over 2007.

This translates to a net farm income figure of $86.9 billion, up slightly from 2007, but 42% above the previous 10-year average.

Much of that is because of the sharp climb of grain prices earlier in the year, but even though those prices have dropped off, global crop demand remains high.

"With large harvests to sell at high prices, 2008 has proven to be another good year for the U.S. farm economy as a whole, driven by strong demand for feed crops, oilseeds and food grains," according to the ERS report.

But, a steady climb isn't noted across the board in the agency's assessment of '08 farm income levels. Though the numbers for grain-based incomes aren't too surprising, the disparity between these numbers and those for livestock producers widened in '08.

"The values of both crop and livestock production have trended steadily upward since 1970. However, the year-to-year movements in the two measures have not always been synchronized," according to the ERS report. "In 2008, the rise in the value of crop production is expected to be nearly 6 times that of livestock. This disparity will cause income circumstances to vary across farms depending on their mix of commodities and inputs."

Even just among crops, income levels varied widely, the report indicates. Farmers growing corn, soybeans and wheat capitalized most on '08 market conditions, and their incomes reflected a stronger gain than other crops.

"States that are leading producers of corn, soybeans and wheat stand to benefit the most in 2008. Their primary commodity prices are rising faster than other crops, while their expenses are roughly equivalent with other commodities," the ERS report says. "Thus, the Midwest and Corn Belt should be big beneficiaries of commodity price trends. Livestock producers are expected to see larger increases in production expenses than crop producers due to their heavy reliance on feed."

The year-end report on farm incomes by USDA-ERS adds that much of what happens in the ag economy in 2009 will hinge on what happens on the macroeconomic level. This may sharpen the influence of factors like exchange rates, interest rates and energy costs on the farm, ERS economists say.

These factors chip in to what comprises the top five "vulnerabilities" for the ag sector moving into 2009, according to the ERS report. Those are:

  1. The relative importance of input price rises in affecting farm operator profit margins
  2. Farmland value volatility
  3. The overall debt structure and solvency of farm businesses
  4. Access of farm households to credit
  5. Off-farm income during a national recession

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