By DOUG SCHMITZ
Iowa Correspondent

WASHINGTON, D.C. — A Feb. 12 report by the USDA’s Economic Research Service predicts net 2009 farm income to drop to $71.2 billion, plummeting 20 percent (or $18.1 billion) lower than 2008’s preliminary estimate of $89.3 billion.

But the USDA said the total would be 9 percent above the 10-year average earned of $65 billion, with government payments at their lowest level since 1997.

USDA Secretary Tom Vilsack told reporters that is wasn’t unusual that farmers would see some potential slippage – especially after posting last year’s record income.

“We’re obviously concerned,” he said. “There are a number of producers that are stressed, and we’re in the process of determining what assistance we can provide.”

Iowa Agriculture Secretary Bill Northey said all U.S. industries and businesses would be affected by the downturn in the global marketplace and the nation’s current economic slowdown.

“Farmers are not different,” he said. “Many farmers have had the opportunities the last few years to prepare for these tough times, and now they will be doing more with less to be more efficient. The final effect will be impacted by many different issues and it’s still too early to determine.”

According to the USDA, net farm income is a USDA measurement of the value of production during the calendar year, whether sold or stored.

The USDA said net cash income, at $77.3 billion, is also forecast down $16.1 billion (or 17 percent) from 2008 but still 7.6 percent above its 10-year average of $71.8 billion.

“Net cash income is projected to decline less than net farm income primarily because it reflects the sale of $1.8 billion in carryover stocks from 2008,” the report stated. “Net farm income reflects only the earnings from production that occurred in the current year.”
While 2009’s net farm income would be the fifth largest on record, the USDA said 2008’s net farm income was driven by a large increase in the value of crop production that was only partially offset by rising costs of production for the farm sector.

“The value of  exceeded its previous record (set in 2007) by $31 billion, a 21-percent increase,” the report stated. “Prices of major crops (corn, soybeans, wheat) trended upward in late 2007 and continued doing so in the first part of 2008 as the remainder of the 2007 harvest was marketed.

“These prices declined in the latter months as the 2008 harvests occurred, but remained high by historic standards,” the USDA said.
Export demand would also be affected, mainly hitting the meat and dairy sector, the USDA added, with the value of livestock, dairy, and poultry forecasted to be $131.9 billion in 2009, down 8 percent from 2008.

“Domestic and global consumers are being pinched by the global economic slowdown and high retail prices,” the report stated. “This has reduced demand for livestock, poultry, and dairy products in domestic and international markets.

“The U.S. dollar, which started to strengthen relative to other currencies in late 2008, has also reduced projected exports of animal products,” the USDA said. The USDA added that U.S. animal sector is projected to account for 44 percent of total agricultural cash receipts in 2009, nearly the same ratio as in 2008.

Vilsack also cited the subsequent impact of the global economy on the U.S. dairy industry, with a significant drop in milk prices likely to cause an 11 percent decline in the value of livestock commodities.
Soft consumer demand is also expected to dramatically reduce milk prices for farmers in 2009, the USDA said.

“As a result, dairy cash receipts are projected to be down more than 35 percent from 2008 levels. While supplies are forecast to remain similar to last year, farm prices for milk are expected to decline significantly for much of the year.”

The USDA said a slight price recovery is expected toward the end of 2009 as excess cows are liquidated. But weaker global demand for dairy products, a strengthening U.S. dollar, and improved dairy productivity in Australia and New Zealand are expected to stifle export growth in the dairy sector in 2009.

Expenses are expected to drop by $13.5 billion in 2009, the first decline since 2002; however, U.S. farm expenses are expected to remain 9 percent higher than seven years ago, the USDA said.
“Following an expected increase of $36.2 billion (14.2 percent) in 2008 to a nominal record $290.6 billion, production expenses are forecast to decrease $13.5 billion (4.6 percent) in 2009 to $277.1 billion, the second highest level ever,” the report stated.

The USDA added that cash receipts for almost all crops would drop in 2009 because of lower prices.

“Exports, weather concerns, input costs all affect farmers profitability and we still don’t know what will happen,” Northey said.
“But the bottom line is we are all going to have to be as efficient as possible in 2009.”

To view the full report, visit http://www.ers.usda.gov/Features/FarmIncome