Farming Pays Big: Higher Income & Asset Values Drive Farming in 2011 into 2012

The next time you sing “Old McDonald Had a Farm” you might want to consider that it is really “Rich Man McDonald” if the USDA report is as clear as it sounds.  The U.S. Department of Agriculture showed a projected net income gain of 28% for all farms.  The net rose to $100.9 billion as a forecast for 2011.  The report is based upon 2011 production rather than which calendar year the sales are recognized in.

The net cash income is expected to be up almost 19% at $109.8 billion, and that is up $34.2 billion above the 10-year average of $75.6 billion.  This reflects only the cash transactions made within the calendar year.

To show a summary comparison, the first figure is a measure intended to track the increase in wealth from production and the second (net cash income) is used as a measure of solvency to track farms’ abilities to pay bills and to pay toward debt.

If the projection is accurate, then 2011 will end up being the first year that both the net farm income and net cash income will have been above the $100 billion mark.  The USDA did quantify this though and noted that the percentage gained by both measures actually shows slight decreases from the previous year.

All things being equal, the USDA figure show the 2011 inflation-adjusted forecasts of net value added of agriculture to the U.S. economy and net cash income are the highest values recorded since 1974.

The USDA sees a 16% rise in sales of crop and livestock by U.S. farm operations in 2011 with crop sales seen exceeding $200 billion for the first time in history for the U.S.  Livestock sales are predicted to rise almost 17%.  Production expenses rose by about 12% or about $34 billion on higher input prices to almost $320 billion in 2011.

It looks like the age of austerity and free markets might actually be showing up here.  The USDA figures that government payments showed by down some 14.4% to $10.6 billion this year.

In 2011, payments to stakeholder are expected to rise only by 4.1% to $52.9 billion even though labor expenses fell by about 1.3%.

Net rent to non-operator landlords is expected to rise 12% in 2011, about half of the gain in 2010.  Cash rent is expected to rise almost 10%, due to “the increase in the value of crop output plus landlord government payments and a 7-percent increase in real estate values.”  The USDA showed that share rent should rise by 18.5%.

Tobacco farmers and quota holders are expected to receive $665 million under the Tobacco Transition Payment Program.

Being a farmer might be hard work now, but farming pays.  The trends seen here should at least set for a decent agriculture and farm equipment market into 2012.  At least that should be the case in North America.

FARM BALANCE SHEETS RISING TOO

The farm sector balance sheet estimates for 2011 are based upon  higher cash receipts for both crops and livestock, and reflect higher production expenses and higher returns in 2011 over 2010.  Three factors driving these asset values higher with the real estate are higher expected income from production assets, as well as favorable borrowing costs, and finally higher returns on these investments.

Farm real estate and non-real estate asset values are expected to rise almost 7% to $2.34 trillion this year.  The good news for a deleveraging balance sheet review is that farm business debt is expected to drop down to $242.5 billion in 2011 versus $246.9 billion in 2010.  That is expected to show that farm equity will rise to $2.1 trillion in 2011 versus $1.94 trillion in 2010.

JON C. OGG