02/14/06 Farm income big drop?

U.S.D.A.'s 82nd annual Ag Outlook takes place this Thursday and Friday in Washington D.C. But a preview, or maybe in some producer's opinions, a bombshell, was released prior to the conference. The agency's website, www.usda.gov, recently posted its long term baseline projections for the next several years. But the attention grabbing estimate pertains to the near future. COLLINS: In 2005, net cash farm income was nearly $83 billion dollars, we are forecasting a drop to about $65 billion dollars in 2006. Or as U.S.D.A. Chief Economist Keith Collins puts it in another way, that's nearly a twenty per cent drop in farm income over a single year. The question then is "Why?" COLLINS: That drop reflects lower cash receipts, mostly from crops. Livestock cash receipts stay fairly strong because of strong beef cattle prices, and because of large meat production expected in 2006. So one factor is lower crop receipts. The second factor is lower government payment. Meaning the last two years saw very substantial payments by the government due to hurricane relief efforts and aid for other natural disasters. Now one might be thinking that rising energy costs might have something to do with lower cash farm income. Collins adds that farm cash expenses from 2003 to this year are expected to jump $16 billion dollars. Part of that are higher energy costs, yes, but Collins adds that interest rates have also increased over that period of time. So what does that all mean for the long term farm income forecasts? For one, despite the projected drop this year, the economy is expected to stabilize. COLLINS: In 2006, we have a drop in cash receipts reflecting the lower prices we're seeing in the marketplace now. And then over time, with a strong U.S. and world economy expected to prevail, we see exports steadily continue to rise. Ethanol becomes a very big demand factor as well as continued growth in exports. The increase in domestic consumption, export demand, exports by the way rise to about $73 billion dollars in the year at 2010. And in particular, the demand for biofuels together start to raise farm prices over the next several years. Collins estimates farm income will eventually settle into a range of about $63 to $66 billion dollars a year. Consistent, yes, but still down from previous years.