Order Code RS21970
Updated February 13, 2006
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
According to USDA’s Economic Research Service (ERS), net farm income — a
key indicator of U.S. farm well-being — is expected to experience a decline in 2006
following three years of robust receipts and income.1 Net farm income is forecast to
decline by $16.5 billion or 23% to $56.2 billion in 2006 due to declines in cash receipts
(down $7.3 billion) and government payments (down $4.6 billion) combined with rising
production expenses (up $6.8 billion). Three years of bountiful harvests have pressured
crop prices lower, while hog, poultry, and dairy prices are also expected to weaken in
2006. In contrast, the cost of fuel and fertilizer, as well as higher interest charges, are
expected to continue to rise.
Farm asset valuation at $1,672 billion and total farm debt at $219 billion are both
projected at record levels in 2006. The debt-to-asset ratio of 13.1 represents a fourth
consecutive year of decline (and the lowest level since 1960), 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. Net cash income is generally less variable than
1 ERS’s 2006 farm sector income forecast was last updated on Feb. 10, 2006; available at the
Farm Income and Costs Briefing Room, at [http://www.ers.usda.gov/Briefing/FarmIncome/
nationalestimates.htm].
Congressional Research Service ˜ The Library of Congress

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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 2006
Net farm income prospects for 2006 of $56.2 billion represent a sharp decline from
last year’s $72.6 billion and are well below 2004’s record of $82.5 billion (Table 1).
When measured in cash terms, net cash income in 2006 is also projected to decline
sharply to $64.7 billion, down 21.9% from $82.8 billion in 2005.
Cash Receipts. The combined value of cash receipts from marketings of both
crop and livestock commodities is projected at $231.7 billion in 2006, the third-highest
amount on record and behind only the values of 2004 and 2005.
Crops. Bountiful supplies — U.S. producers have harvested more feed grains,
soybeans, rice, and cotton over the past two years than any comparable period in history
— have pressured prices lower despite record use for that same period. As a result, crop
cash receipts in 2006 are expected to fall to a four-year low. Cash receipts for fruits and
nuts, and greenhouse and nursery crops are expected to rise slightly while vegetable
receipts decline. Total crop receipts for 2006 are projected $4.7 billion lower to $109.4
billion.
Livestock. Cash receipts by the livestock sectors continue to be dominated by
strong returns to beef, and demand is expected to strengthen in 2006 as several Asian
countries resume imports of U.S. beef following a BSE-related ban. Cattle prices in 2006
are expected to remain in the mid-$80s per cwt. Poultry and egg receipts are also
projected slightly higher due to strong demand. In contrast, cash receipts for hogs and
dairy products are projected lower in 2006 due to stronger supply growth and lower
prices. In sum, livestock receipts are projected down $2.6 billion at $122.3 billion.
Government Payments. Government direct payments are forecast at
$18.5 billion in 2006, down from a record $23.0 billion in 2005. A large increase in
counter-cyclical payments (CCP) of $4.1 billion in 2006 are expected to be more than
offset by declines of $2.1 billion in marketing loan benefits (LDPs, marketing loan gains,
and certificate exchange gains) and $2.6 billion in ad hoc and emergency program
payments.2 Most of the benefits to agriculture in 2005 under emergency payments are not
authorized for 2006.3 Farm disaster assistance and emergency assistance payments have
figured heavily in sectoral income in 16 of the previous 17 years (1989-2005). Fixed
direct payments are estimated at $5.2 billion, down marginally from 2005. Direct
payment rates are fixed in legislation and are not affected by the level of program crop
prices. However, changes in enrollment from year to year can affect the program acres
2 For more information on commodity programs, see CRS Report RL33271, Farm Commodity
Programs: Direct Payments, Counter-Cyclical Payments, and Marketing Loans, by Jim Monke.
3 For more information, see CRS Report RL31095, Emergency Funding for Agriculture: A Brief
History of Supplemental Appropriations, FY1989-FY2005, by Ralph M. Chite.

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and yields used to determine payments. In making its forecast, USDA assumes that 7%
of 2006 payment participants receive 50% of their direct payment in advance.4
Production Expenses. Total cash production expenses are forecast at a record
$203.5 billion in 2006, up $6.8 billion from last year’s record level. Higher costs for
energy, fertilizer, and interest charges are behind the surge in costs.
Farm Asset Values and Debt. Continued strong net cash income and
government payments, coupled with relatively low long-term interest rates, are expected
to support higher farm asset values, projected up 5.2% in 2006 to a record $1,672 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 $6.1 billion) to a record $219 billion in
2006. Farm equity is projected at a record $1,453 billion, while the farm debt-to-asset
ratio in 2006 is expected to decline to a 45-year low of 13.1%. The U.S. farm debt-to-
asset ratio peaked in 1985 at 23%.
Additional Farm Financial Information
ERS publishes a periodical, Agricultural Income and Finance Outlook, that provides
historical estimates and forecasts of farm sector financial information.5 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].
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/].
4 USDA, ERS, Farm Income and Costs: 2006 Farm Sector Income Forecast, Feb. 10, 2006;
available at [http://www.ers.usda.gov/Briefing/FarmIncome/nationalestimates.htm].
5 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//].

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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.nass.usda.gov/Publications/index.asp]. 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
international commodity market circulars; U.S. agricultural attache reports from around
the world; U.S. and international commodity supply and demand data; and U.S.
agricultural trade data; available at [http://www.fas.usda.gov/markettradedata.asp].
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
a n d D e m a n d E s t i m a t e s ( W A S D E ) r e p o r t , a v a i l a b l e a t
[http://www.usda.gov/oce/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].

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Table 1. Overview of the U.S. Farm Economy
($ billion)
Commodity
2001
2002
2003
2004
2005Fa
2006Fa
1. Cash receipts
200.1
195.0
216.6
241.2
239.0
231.7
Cropsb
93.3
101.0
111.0
117.8
114.1
109.4
Livestock
106.7
94.0
105.6
123.5
124.9
122.3
2. Government paymentsc
20.7
11.2
17.2
13.3
23.0
18.5
Fixed direct paymentsd
4.0
3.9
6.4
5.2
5.3
5.2
CCPe
0.0
0.2
2.3
1.1
4.1
5.3
Marketing Loan Benefitsf
6.2
1.7
2.0
3.8
6.2
4.1
Conservation
1.9
2.0
2.2
2.3
2.5
2.8
Ad Hoc & emergency
8.5
1.6
3.1
0.6
2.9
0.3
All otherg
0.1
1.9
1.2
0.2
2.0
0.8
3. Farm-related incomeh
14.8
14.8
15.7
17.2
17.5
18.0
4. Gross cash income (1+2+3)
235.6
221.0
249.5
271.7
279.5
268.2
5. Cash expenses
175.5
171.6
177.9
186.2
196.7
203.5
6. NET CASH INCOME (4-3)
60.1
49.5
71.6
85.5
82.8
64.8
7. Total gross revenuesi
248.7
229.9
259.8
292.3
293.6
285.4
8. Total expensesj
197.1
193.4
200.3
209.8
221.1
229.2
9. NET FARM INCOME (7-8)
51.5
36.6
59.5
82.5
72.6
56.2
Farm Assets
1,255.9
1,304.0
1,378.8
1,500.8
1,589.5
1,671.6
Farm Debt
185.7
193.3
198.0
206.9
212.6
218.7
Farm Equity
1,070.2
1,110.7
1,180.8
1,293.9
1,376.9
1,452.9
Debt-to-asset ratio (expressed as %)
14.8%
14.8%
14.4%
13.8%
13.4%
13.1%
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. Includes: LDP = loan deficiency payments; MLG = marketing loan gains; and commodity certificate
exchange 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.

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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
Wheata
$/bu
Jun-May
2.48
2.62
2.78
3.56
3.40
3.40
3.35-3.45
—
2.75
Corna
$/bu
Sep-Aug
1.82
1.85
1.97
2.32
2.42
2.06
1.75-2.05
—
1.95
Sorghuma
$/bu
Sep-Aug
1.57
1.89
1.94
2.32
2.39
1.79
1.60-1.80
—
1.95
Barleya
$/bu
Jun-May
2.13
2.11
2.22
2.72
2.83
2.48
2.35-2.55
—
1.85
Oatsa
$/bu
Jun-May
1.12
1.10
1.59
1.81
1.48
1.48
1.55-1.60
—
1.33
Ricea
$/cwt
Aug-Jul
5.93
5.61
4.25
4.49
8.08
7.33
7.65-7.95
—
6.50
Soybeansa
$/bu
Sep-Aug
4.63
4.54
4.38
5.53
7.34
5.75
5.20-5.80
—
5.00
Soybean oilb
¢/lb
Oct-Sep
15.6
14.1
16.5
22.0
30.0
23.0
20.5-22.5
—
—
Soybean mealb
$/st
Oct-Sep
154.1
173.6
167.7
181.6
256.1
182.9
165-180
—
—
Cotton, Uplandc
¢/lb
Aug-Jul
45.0
49.8
29.8
44.5
61.8
41.6
— c
— 52.0
Choice Steersd
$/cwt
Jan-Dec
65.6
70.0
72.6
67.0
84.7
84.8
87.3
83-88
—
Barrows/Giltsd
$/cwt
Jan-Dec
34.0
45.3
45.8
34.9
39.5
52.5
50.1
42-45
—
Broilersd
¢/lb
Jan-Dec
58.1
56.2
59.1
55.6
62.0
74.1
70.8
65-69
—
Eggsd
¢/doz
Jan-Dec
65.6
68.9
67.1
67.1
87.9
82.2
65.5
68-73
—
Milkd
$/cwt
Jan-Dec
14.35
12.32
14.98
12.11
12.52
16.05
15.15
13.10-13.80
—
a. Season average farm price from USDA, National Agricultural Statistical Service, Agricultural Prices. Calendar year data is for the first year, e.g., 2000/2001 = 2000; F = forecast
from World Agricultural Supply and Demand Estimates (WASDE) Feb. 9, 2006; — = no loan rate; and USDA’s out-year 2006/2007 crop price forecasts will first appear in the
May 2006 WASDE report.
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.

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