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Studied inspection of farm incomes tells a new story
 

By EMMA HOPKINS-O’BRIEN

WASHINGTON, D.C. — A recent report from the USDA’s Economic Research Service analyzed the farm income of about 2 million U.S. households, and found a different picture is revealed with comprehensive study.

The report, Economic Returns to Farming for U.S. Farm Households, was based on 2015 data and gives economists a broader perspective on the financial conditions of farm households. Purdue University expert in agricultural economics, Chris Hurt, said studying farm income is a complex issue.

“Household income for a farm includes incomes from the farm, plus earned income from working off-farm and income from non-earned sources such as from investments like savings accounts, certificates of deposit, stock dividends, et cetera,” he explained.

The study divided “farm households” into three categories:

•Commercial farms: Farms with $350,000 or more gross cash farm income, regardless of the principal operator’s occupation

•Residence farms: Farms with less than $350,000 in gross cash farm income and where the principal operator has a non-farm primary occupation

•Intermediate farms: Farms with less than $350,000 in gross cash farm income and where the principal operator’s primary occupation is farming

Regarding the data the study compared, Hurt said a few points can be made. For instance, small farms where the primary operator’s occupation is non-farming had higher household incomes than small farms in which the primary operator’s occupation is farming.

“Small farm operations tend to have low or even negative farm incomes, but small farms tend to have higher off-farm incomes that dominate total household incomes,” he said. “Large commercial farming operations had higher incomes than small farms in general.”

Small farms do not tend to make a lot of money, Hurt said, but their operators do benefit in other ways, such as owning farmland. Farmland has generally contributed to rising net worth for households, as land values have tended to increase over time.

Farm losses incurred on small operations are also used to reduce the amount of total income tax the household pays.

Though the data analyzed in this report may be from three years ago, Hurt said it may be similar to current numbers. Farm household incomes have gone down somewhat since 2015, but off-farm incomes have risen by about the same amount.

 “So 2018 estimated farm household income is only modestly lower than in 2015 – $119,252 in 2018 versus $119,880 in 2015.” he said. “USDA was scheduled to update estimates of farm income on August 30, so that could change some of the 2017 and 2018 data.”

Jayson Lusk, a department head and distinguished professor of agricultural economics at Purdue, pointed out farm-only net income has fallen significantly since 2015.

“Net farm income was $81 billion in 2015 but fell to the low $60 billion in 2016, and is projected at $59.5 billion in 2018,” he said. “So, compared to 2015, net income from farming is likely lower due to ample supplies of commodity crops and continued good yields that have added more supply.”

Jim Mintert, a professor and extension economist at Purdue, as well as director of its Center for Commercial Agriculture, agreed that farm household incomes in 2018 are likely similar to the picture in 2015; however, there is a caveat.

“One possible difference between this year and 2015 could be in the contribution the report identified from asset appreciation,” he explained. “Asset appreciation made a significant contribution to the overall income picture in 2015 – that’s not likely to be the case this year.”

How does a more comprehensive picture of farm income assist in improving the current distressed farm economic situation? Mintert said it can help in decision-making.

“This type of information is most useful for farm policymakers,” he said. “The results confirm it’s important to look at income in a more comprehensive fashion when considering farm sector needs.”

Surprisingly enough, the report also uncovered some good news, according to Mintert. “As has often been suspected by economists, the income picture looks brighter when a more comprehensive view is taken.”

10/17/2018