Order Code RS21970
Updated September 21, 2005
CRS Report for Congress
Received through the CRS Web
The U.S. Farm Economy
Randy Schnepf
Specialist in Agricultural Policy
Resources, Science, and Industry Division
Summary
Forecasts of two key indicators of U.S. farm well-being — net farm income and the
debt-to-asset ratio — suggest a third consecutive robust year for the U.S. agricultural
sector in 2005. However, 2005 is likely to see a 13% decline in net farm income to
$71.8 billion (still second largest on record) following two consecutive years of record
receipts, expenses, and income for the U.S. farm economy. Record production expense
($218.7 billion) driven by a surge in the cost of fuel, fertilizer, and manufactured inputs,
as well as higher interest charges, are expected to more than offset continued strong cash
receipts of $239.6 billion and an $8.1 billion jump in direct government payments to
$21.3 billion, according to income forecast data from USDA’s Economic Research
Service (ERS).1
Farm asset valuation at $1,592 billion and total farm debt at $213 billion are also
projected at record levels in 2005. The debt-to-asset ratio of 13.4 represents a fourth
consecutive year of decline (to a 44-year low), suggesting a strong financial position for
the agricultural sector as a whole. This report will be updated as events warrant.
Introduction
Two indicators that measure the economic well-being of the farm economy are net
cash income and net farm income. Net cash income compares cash receipts to cash
expenses. As such, it is a cash flow measure representing the funds that are available to
farm operators to meet family living expenses and make debt payments. Net farm income
differs from net cash income by including the value of home consumption, changes in
inventories, capital replacement, and implicit rent and expenses related to the farm
operator’s dwelling that are not reflected in cash transactions during the current year. Net
farm income is a value of production measure, indicating the farm operator’s share of the
net value added to the national economy within a calendar year, independent of whether
it is received in cash or a noncash form.
1 USDA, ERS, Farm Income and Costs Briefing Room, “Farm Sector Income,” available at
[http://www.ers.usda.gov/Briefing/FarmIncome/nationalestimates.htm].
Congressional Research Service ˜ The Library of Congress

CRS-2
Net cash income is generally less variable than net farm income. Farmers can
manage the timing of crop and livestock sales and of the purchase of inputs to stabilize
the variability in their net cash income. For example, farmers can hold crops from large
harvests to sell in the forthcoming year when output may be lower and prices higher.
Outlook for Calendar Year 2005
Prospects for 2005 are for a modest fallback from last year’s record net farm income
and production levels. Yet, at $71.8 billion, net farm income in 2005 is projected to be
second only to last year’s $82.5 billion (Table 1). Cash receipts for livestock products
in 2005 are projected at a record $123.7 billion, just ahead of last year’s record $123.5
billion. In contrast, 2005 crop receipts are projected slightly lower at $116 billion due to
a weaker price outlook for most major field crops (Table 2). Production expenses are
projected to rise sharply (up $8.9 billion to $218.7 billion) due to strong energy, fertilizer,
and manufactured input costs, and higher interest rates. Because farmers postponed
selling much of their bumper 2004 harvests until 2005, net cash income in 2005 is
projected to decline only marginally to $85.2 billion, down from $85.5 billion in 2004.
Cash Receipts. The combined value of cash receipts from marketings of both
crop and livestock commodities is projected at $239.6 billion in 2005, the second-highest
amount on record and down slightly from last year’s record $241.2 billion.
Livestock. Cash receipts by the livestock sectors continue to be dominated by
strong returns to beef. Even with Canadian fed cattle under 30 months old allowed to
enter the U.S. beef market for slaughter on July 18, 2005, beef producers are projected to
have an increase in their receipts of more than $2.3 billion over 2004. Cattle prices in
2005 are expected to be more than $2 per cwt higher than in 2004. In contrast to beef,
cash receipts for hogs, eggs, and dairy products are projected lower in 2005 due to
stronger supply growth and lower prices. Poultry receipts are projected stable. In sum,
livestock receipts are projected at a record $123.7 billion in 2005.
Crops. The preliminary outlook for large stock carry-ins is expected to pressure
crop prices lower across the board in 2005. In addition, USDA crop estimates as of
September 12, 2005, do not forecast a repeat of the 2004 record harvests of corn, soybean,
cotton, and rice crops. However, gains in fruits and nuts, vegetables, and greenhouse and
nursery crops partially offset declines in field crop receipts. Total crop receipts for 2005
are projected $1.8 billion lower to $116.0 billion.
Government Payments. Government direct payments are forecast at
$21.4 billion in 2005, up sharply from $13.3 billion in 2004, but still below the record
$22.9 billion in 2000. Large crop supplies following record harvests in 2004 for several
major crops have contributed to dropping market prices low enough (relative to crop loan
rates) to bring price-triggered government programs into play. Counter-cyclical payments
are projected at a record $4.1 billion in 2005, while loan deficiency payments and
marketing loan gains are also projected to grow to a combined $4.8 billion.2 Ad hoc
emergency assistance payments are also expected to be larger in 2005, as most of the
2 For more information on commodity programs, see CRS Report RS21779, Farm Commodity
Programs: Direct Payments, Counter-Cyclical Payments, and Marketing Loans
, by Jim Monke.

CRS-3
estimated $2.9 billion in emergency payments for agriculture authorized by the Military
Construction Appropriations and Emergency Hurricane Supplemental Appropriations Act
(P.L. 108-324) of October 13, 2004, are expected to be paid out in 2005.3 Farm disaster
assistance and emergency assistance payments have figured heavily in sectoral income in
14 of the previous 15 years (1989-2004). Fixed direct payments are estimated at $5.0
billion, down slightly from 2004.
Production Expenses. Total cash production expenses are forecast at a record
$194.0 billion, up $5.8 billion from last year’s record level. Higher costs for energy,
fertilizer, manufactured inputs, and interest charges are behind the surge in costs.
Farm Asset Values and Debt. Continued strong cash income is expected to
support higher farm asset values, projected up 6.1% in 2005 to a record $1,591.9 billion,
on the strength of higher values for real estate, machinery, and financial assets. Farm debt
is projected to rise by a much smaller 2.9% (or $6.0 billion) to a record $213.0 billion in
2005. Farm equity is projected at a record $1,378.9 billion, while the farm debt-to-asset
ratio in 2005 is expected to decline to a 44-year low of 13.4%. The U.S. farm debt-to-
asset ratio peaked in 1985 at 23%.
Farm Household Income. Average farm-operator household income is projected
at a record $88,105 in 2005. Off-farm income sources are expected to account for 86%
of the national average farm household income compared with 14% from farming
activities. However, the share of income from farming increases with farm size (as
measured by gross sales). For example, “large” family farms (farms with annual sales
between $250,000 and $499,999), on average, obtain 60% of their total household income
from farming activities; “very large” family farms (farms with annual sales in excess of
$500,000) obtain 80%.
Additional Farm Financial Information
ERS publishes a periodical, Agricultural Income and Financial Outlook, that
provides historical estimates and forecasts of farm sector financial information.4 The
report gauges the financial health of the nation’s farmers and ranchers. Common topics
include trends in farm sector receipts, expenses, debt, assets, and costs of producing crops
and livestock. Each issue concentrates on a particular area of the farm financial picture.
In addition, ERS publishes online several summary data tables of historical, current, and
projected indicators relevant to understanding the U.S. agricultural economy. These
include the following.
Farm Income Data. These tables, which include national- and state-level data on
farm income, cash receipts, production expenses, balance sheet, and government
payments for 2001-2005, are available at [http://www.ers.usda.gov/data/FarmIncome/
finfidmu.htm].
3 For more information, see CRS Report RL31095, Emergency Funding for Agriculture: A Brief
History of Supplemental Appropriations, FY1989-FY2005
, by Ralph M. Chite.
4 Current and historical copies of Agricultural Income and Financial Outlook are available at
[http://www.ers.usda.gov/publications/so/view.asp?f=economics/ais-bb/].

CRS-4
Farm Structural Characteristics. Charts and text, which include information
about both farm characteristics (such as farm size, tenure, specialization, and sources of
income) and characteristics of the sector (such as concentration and contracting), are
available at [http://www.ers.usda.gov/Briefing/FarmStructure/Questions/
farmstruct.htm#conc].
State Fact Sheets. State-specific data tables that provide information on
population, employment, income, farm characteristics, and farm financial indicators for
each state in the United States are available at [http://ers.usda.gov/StateFacts/].
Other Resources
USDA’s National Agricultural Statistics Service (NASS). NASS publishes
reports on farm production data, prices received, and prices paid for most agricultural
activities undertaken in the United States, which are available at [http://www.usda.gov/
nass/pubs/pubs.htm]. In addition, NASS publishes charts and supporting data
highlighting trends in U.S. agriculture such as farm numbers, land values, commodity
production, etc., from the early 1900s on; these are available at [http://www.usda.gov/
nass/pubs/trends/].
USDA’s Agricultural Marketing Service (AMS). AMS continuously monitors
prices at major commodity and terminal markets; see [http://www.ams.usda.gov/
marketnews.htm].
USDA’s Farm Service Agency (FSA). FSA administers commodity support
programs and publishes fact sheets describing program operations and activity details;
they are available at [http://www.fsa.usda.gov/pas/publications/facts/pubfacts.htm]. In
addition, FSA publishes information on various program budgetary outlays (current and
projected), as well as commodity specific outlays in Summary Table 35, “CCC Net
Outlays by Commodity and Function”; see [http://www.fsa.usda.gov/dam/bud/bud1.htm].
USDA’s Foreign Agricultural Service (FAS). FAS monitors and publishes
U.S. and international commodity supply and demand data at [http://www.fas.usda.gov/
psd/], and U.S. agricultural trade data at [http://www.fas.usda.gov/ustrade/].
USDA’s World Agricultural Outlook Board (WAOB). WAOB uses data from
NASS, AMS, FSA, FAS, and other sources to make monthly supply and demand
projections for major commodities, published monthly in the World Agricultural Supply
and Demand Estimates
(WASDE) report, available at [http://www.usda.gov/oce/
waob/index.htm].
The Center for the Study of Rural America (CSRA). CSRA at the Federal
Reserve Bank of Kansas City publishes a summary of the rural nonfarm and farm
economies, which is available at [http://www.kc.frb.org/RuralCenter/AtaGlance/
AtaGlanceMain.htm].

CRS-5
Table 1. Overview of the U.S. Farm Economy
($ billion)
Commodity
2000
2001
2002
2003
2004Fa
2005Fa
1. Cash receipts
192.1
200.1
195.0
216.6
241.2
239.6
Cropsb
92.5
93.3
101.0
111.0
117.8
116.0
Livestock
99.6
106.7
94.0
105.6
123.5
123.7
2. Government paymentsc
22.9
20.7
11.2
17.2
13.3
21.4
Fixed direct paymentsd
5.0
4.0
3.9
6.4
5.2
5.0
CCPe
0.0
0.0
0.2
2.3
1.1
4.1
LDP & MLGf
7.6
6.2
1.7
2.0
3.8
4.8
Conservation
1.7
1.9
2.0
2.2
2.3
2.5
Ad Hoc & emergency
8.6
8.5
1.6
3.1
0.6
3.9
All otherg
0.0
0.1
1.9
1.1
0.2
1.0
3. Farm-related incomeh
13.7
14.8
14.8
15.7
17.2
18.3
4. Gross cash income (1+2+3)
228.7
235.6
221.0
249.5
271.7
279.3
5. Cash expenses
172.0
175.5
171.6
177.9
186.2
194.0
6. NET CASH INCOME (4-3)
56.7
60.1
49.5
71.6
85.5
85.2
7. Total gross revenuesi
241.3
248.7
229.9
259.8
292.3
290.5
8. Total expensesj
193.4
197.1
193.4
200.3
209.8
218.7
9. NET FARM INCOME (7-8)
47.9
51.5
36.6
59.5
82.5
71.8
Farm Assets
1,203.2
1,255.9
1,304.0
1,378.8
1,500.8
1,591.9
Farm Debt
177.6
185.7
193.3
198.0
206.9
213.0
Debt-to-asset
14.8
14.8
14.8
14.4
13.8
13.4
Source: USDA, Economic Research Service, Farm Income and Costs: Farm Sector Income briefing room,
available at [http://www.ers.usda.gov/Briefing/FarmIncome/nationalestimates.htm].
a. F = forecast.
b. Includes CCC loans.
c. For more information on U.S. farm commodity programs, see CRS Report RS21999, Farm Commodity
Policy: Programs and Issues for Congress, by Jim Monke; for more information on agricultural
conservation programs see CRS Issue Brief IB96030, Soil and Water Conservation Issues, by Jeffrey
Zinn.
d. Direct payments include production flexibility payments of the 1996 Farm Act through 2001, and fixed
direct payments under the 2002 Farm Act since 2002.
e. CCP = counter-cyclical payments.
f. LDP = loan deficiency payments; MLG = marketing loan gains.
g. Peanut quota buyout, milk income loss payments, and other miscellaneous program payments.
h. Income from custom work, machine hire, recreational activities, forest product sales, and other farm
sources.
i. Gross cash income plus inventory adjustments, the value of home consumption, and the imputed rental
value of operator dwellings.
j. Cash expenses plus depreciation and perquisites to hired labor.

CRS-6
Table 2. U.S. Prices and Loan Rates for Selected Farm Commodities, 1998/1999-2005/2006
Commodity
Unit
Year 1999/2000
2000/2001
2001/2002
2002/2003
2003/2004
2004/2005
2005/2006F
2006/2007F
Loan
rate
Wheatb
$/bu
Jun-May
2.48
2.62
2.78
3.56
3.40
3.40
3.00-3.40

2.75
Cornb
$/bu
Sep-Aug
1.82
1.85
1.97
2.32
2.42
2.06
1.70-2.10

1.95
Sorghumb
$/bu
Sep-Aug
1.57
1.89
1.94
2.32
2.39
1.78
1.50-1.90

1.95
Barleyb
$/bu
Jun-May
2.13
2.11
2.22
2.72
2.83
2.48
2.10-2.50

1.85
Oatsb
$/bu
Jun-May
1.12
1.10
1.59
1.81
1.48
1.48
1.40-1.70

1.33
Riceb
$/cwt
Aug-Jul
5.93
5.61
4.25
4.49
8.08
7.33
7.25-7.55

6.50
Soybeansb
$/bu
Sep-Aug
4.63
4.54
4.38
5.53
7.34
5.75
5.15-6.05

5.00
Soybean oilc
¢/lb
Oct-Sep
15.6
14.1
16.5
22.0
30.0
23.0
21.5-24.5


Soybean mealc
$/st
Oct-Sep
154.1
173.6
167.7
181.6
256.1
185.0
165-195


Cotton, Uplandb
¢/lb
Aug-Jul
45.0
49.8
29.8
44.5
61.8
42.9
— d
— 52.0
Choice Steerse
$/cwt
Jan-Dec
65.6
70.0
72.6
67.0
84.7
84.8
84-86
76-82

Barrows/Giltse
$/cwt
Jan-Dec
34.0
45.3
45.8
34.9
39.5
52.5
48-49
43-47

Broilerse
¢/lb
Jan-Dec
58.1
56.2
59.1
55.6
62.0
74.1
72-73
70-76

Eggse
¢/doz
Jan-Dec
65.6
68.9
67.1
67.1
87.9
82.2
63-64
63-68

Milke
$/cwt
Jan-Dec
14.35
12.32
14.98
12.11
12.52
16.05
15.05-15.25
13.10-14.10

Notes: Calendar year data is for the first year, e.g., 2000/2001 = 2000; F = forecast from World Agricultural Supply and Demand Estimates (WASDE) Sept. 12, 2005; — = no loan
rate; and USDA’s out-year 2006/2007 crop price forecasts will first appear in the May 2006 WASDE report.
a. Season average farm price from USDA, National Agricultural Statistical Service, Agricultural Prices.
b. USDA, Agr. Marketing Service (AMS), Decatur, IL, cash price, simple ave. crude for soybean oil, and simple ave. 48% protein for soybean meal.
c. USDA is prohibited by law from publishing cotton price projections [12 U.S.C. 1141(j)(d)].
d. USDA, AMS: choice steers — Nebraska, direct 1100-1300 lbs.; barrows/gilts — national base, live equivalent 51%-52% lean; broilers — wholesale, 12-city average; eggs — Grade
A, New York, volume buyers; and milk — simple average of prices received by farmers for all milk.