Order Code RS21970
Updated September 6, 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), national 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 $19.4 billion (or 26%) to $54.4 billion in 2006 due to declines in
cash receipts (down $3.6 billion) and government payments (down $6.1 billion)
combined with a sharp rise in production expenses (up $9.5 billion).
Crop receipts are projected to reach a record high in 2006, despite a smaller crop
outlook, on the strength of higher prices. However, gains in crop receipts are expected
to be more than offset by sharply lower livestock receipts due to weaker hog, broiler,
and dairy prices. The projected rises in crop prices are expected to reduce price-
triggered marketing loan benefits, leading to lower total government payments. Finally,
energy, fertilizer, and pesticide costs, as well as interest charges, are expected to rise
significantly in 2006, cutting into net farm returns.
Farm asset value of $1,919 billion and total farm debt of $217 billion are both
projected at record levels in 2006. However, the debt-to-asset ratio of 11.3% 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. In contrast, net
farm income is a value of production measure, indicating the farm operator’s share of the
1 ERS’s 2006 farm sector income forecast, last updated on Aug. 31, 2006, is 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 value added to the national economy within a calendar year, independent of whether
it is received in cash or a noncash form. 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 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.
Figure 1. U.S. Farm Net Cash Income Outlook, 1960 to 2006F
3 0 0
G r o ss c a sh in co m e
2 5 0
2 0 0
1 5 0
C ash e x p e n s es
1 0 0
5 0
N et ca sh in c om e
0
1 9 6 0
1 9 7 0
1 9 8 0
1 9 9 0
2 0 0 0
N o te: 2 0 0 6 is p ro je cte d . S o u rc e: U S D A , E co n o m ic R ese arc h
S erv ice, “2 0 0 6 Far m In co m e Fo re cast,” at [ w w w .ers.u sd a.g o v] .
Outlook for Calendar Year 2006
Net farm income estimates for 2006 of $54.4 billion represent a sharp decline from
last year’s $73.8 billion and are well below 2004’s record of $85.4 billion (Table 1).
When measured in cash terms, net cash income in 2006 is also projected to decline
sharply to $63.2 billion, down 22.2% from $81.2 billion in 2005 (Figure 1).
Cash Receipts. The combined value of cash receipts from marketings of both
crop and livestock commodities is projected at $235.3 billion in 2006, the third-highest
amount on record and behind only the values of 2004 and 2005. Farm cash receipts
experienced sharp variation in sources in 2006 as record crop receipts, up $2.3 billion,
were offset by a projected $6 billion decline in livestock receipts.
Crops. Dry weather across the Plains states, western Corn Belt, and parts of the
southeastern United States is expected to reduce harvests for all major field crops —

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wheat, corn, sorghum, barley, oats, soybean, cotton, and rice — in 2006. U.S. total wheat
production is forecast at only 1.8 billion bushels, the lowest output since 1978. As a
result of the reduced production outlook coupled with steady to higher demand, crop
prices are expected to rebound from 2005’s relatively low levels for nearly all grain crops
while soybean prices remain steady (Table 2). Preliminary 2006/2007 demand projections
for corn call for robust demand growth from the ethanol sector, which is projected to use
19.6% of the U.S. corn crop in 2006, up sharply from a 14.4% usage rate in 2005. Higher
crop prices are expected to more than offset production declines and generate record crop
cash receipts of $116.3 billion. Wheat cash receipts are projected at a record $7.1 billion.
Cash receipts for fruits and nuts, vegetables, and greenhouse and nursery crops are also
expected to rise slightly.
Livestock. Cash receipts in the poultry, hogs, and dairy sectors are projected to fall
in 2006 due to year-to-year price declines in those sectors. Cattle prices in 2006 are
expected to remain in the mid-$80s per cwt., bolstered in part by a reopening of Japan’s
market for U.S. beef, and cash receipts for beef producers to hold steady. In sum,
livestock receipts are projected to decline by $6 billion to $119 billion.
Government Payments. Government direct payments are forecast at
$18.2 billion in 2006, down from a record $24.3 billion in 2005. A $4.1 billion decrease
in marketing loan benefits (loan deficiency payments, marketing loan gains, and
certificate exchange gains) in 2006 accounts for most of the decline in government
payments.2 Higher projected market prices are also expected to reduce payments under
the Counter-Cyclical Program (CCP) for the 2006 crops — only sorghum, cotton, and
peanut producers are expected to receive CCP payments on 2006 crops. However, total
CCP payments are actually expected to edge slightly higher in calendar 2006, as both the
second and final CCP payments for the 2005 crop are made in 2006. Farm disaster
assistance and emergency assistance payments — which have figured heavily in sectoral
income in 16 of the previous 17 years (1989-2005) — are expected to decline to $1.3
billion in 2006.3 This estimate includes hurricane assistance for 2005 losses, but does not
include any assistance for 2005 and 2006 crop and livestock losses elsewhere. The
Senate-reported version of H.R. 5384, currently pending, includes $4 billion of emergency
agricultural disaster assistance; however, if enacted, the funding would likely not be
available until calendar 2007. Fixed direct payments — whose payment rates are fixed
in legislation and are not affected by the level of program crop prices — are estimated at
$5.3 billion, up marginally from 2005 due to a change in the number of farmers taking
advantage of the advance payment option.
Production Expenses. Total cash production expenses are forecast at a record
$209.2 billion in 2006, up $9.5 billion (4.8%) from last year’s record level. Higher costs
for energy, fertilizer, and interest charges (up nearly 8%) are behind the surge in costs.
Manufactured inputs — e.g., fuel, fertilizer, electricity, and pesticides — account for
about 16% of national average farm operating expenses, while interest charges represent
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-FY2006; and CRS Report RS21212,
Agricultural Disaster Assistance, both by Ralph M. Chite.

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about 7%. Farm origin inputs, e.g., feed and seed, which account for over 25% of average
farm expenses, are expected to rise by 5% due to projected higher crop prices.
Farm Asset Values and Debt. Despite the relative declines in net cash income
and government payments, farm asset values are projected up 6.3% in 2006 to a record
$1,919 billion, primarily on the strength of higher real estate values. Farm debt is
projected to rise by a much smaller 1.1% (or $2.5 billion) to a record $216.5 billion in
2006. As a result, farm equity (defined as asset value minus debt) is projected at a record
$1,702 billion, while the farm debt-to-asset ratio in 2006 is expected to decline to a 45-
year low of 11.3%. The U.S. farm debt-to-asset ratio peaked in 1985 at 23%.
Farm Household Income. Average farm-operator household income is projected
at $75,848 in 2006, down 5% from the previous year, and 7% below the record of $81,596
set in 2004. Off-farm income sources are expected to account for nearly 87% of the
national average farm household income in 2006, compared with about 13% 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 63% of their total household income
from farming activities; “very large” family farms (farms with annual sales in excess of
$500,000) obtain 79% on average. These two classes of farms represent slightly less than
8% of family farms, but accounted for 74% of total production value in 2005.4
4 For more information on farm typology see the ERS Briefing Room, Farm Household
Economics and Well-Being: Farm Operator Household Income Forecasts, at [http://www.ers.
usda.gov/Briefing/WellBeing/farmhouseincome.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
215.5
237.9
238.9
235.3
Cropsb
93.3
101.0
109.9
114.3
114.0
116.3
Livestock
106.7
94.0
105.6
123.6
125.0
119.0
2. Government paymentsc
20.7
12.4
16.5
13.0
24.3
18.2
Fixed direct paymentsd
4.0
3.9
6.4
5.2
5.2
5.2
CCPe
0.0
0.2
2.3
1.1
4.1
4.2
Marketing Loan Benefitsf
6.2
2.8
1.3
3.5
7.0
2.9
Conservation
1.9
2.0
2.2
2.3
2.8
2.9
Ad Hoc & emergency
8.5
1.7
3.1
0.6
3.2
1.3
All otherg
0.1
1.9
1.2
0.2
2.1
1.7
3. Farm-related incomeh
14.8
14.8
15.7
16.9
17.6
18.9
4. Gross cash income (1+2+3)
235.6
222.2
247.8
267.8
280.9
272.3
5. Cash expenses
175.5
171.6
177.8
186.3
199.7
209.2
6. NET CASH INCOME (4-3)
60.1
50.7
70.0
81.5
81.2
63.2
7. Total gross revenuesi
248.7
233.6
260.9
296.2
299.8
291.2
8. Total expensesj
197.1
193.4
200.4
210.8
226.0
236.8
9. NET FARM INCOME (7-8)
51.5
40.2
60.4
85.4
73.8
54.4
Farm Assets
1,255.9
1,304.0
1,378.8
1,584.8
1,805.3
1,918.6
Farm Debt
185.7
193.3
198.0
201.7
214.1
216.5
Farm Equity
1,070.2
1,110.7
1,180.8
1,383.1
1,591.2
1,702.1
Debt-to-asset ratio (expressed as %)
14.8%
14.8%
14.4%
12.7%
11.9%
11.3%
Source: USDA, Economic Research Service, Farm Income and Costs: Farm Sector Income briefing room,
available as of Aug. 31, 2006, 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 Report RL33556, Soil and Water Conservation: An Overview, 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, 1998/1999-2006/2007F
Commodity
Unit
Year 1999/2000 2000/2001 2001/2002 2002/2003
2003/2004
2004/2005
2005/2006
2006/2007F
2007/2008F
Loan
rate
Wheata
$/bu
Jun-May
2.48
2.62
2.78
3.56
3.40
3.40
3.42
3.90-4.50
—
2.75
Corna
$/bu
Sep-Aug
1.82
1.85
1.97
2.32
2.42
2.06
1.99
2.15-2.55
—
1.95
Sorghuma
$/bu
Sep-Aug
1.57
1.89
1.94
2.32
2.39
1.79
1.78
1.95-2.35
—
1.95
Barleya
$/bu
Jun-May
2.13
2.11
2.22
2.72
2.83
2.48
2.53
2.45-2.85
—
1.85
Oatsa
$/bu
Jun-May
1.12
1.10
1.59
1.81
1.48
1.48
1.63
1.60-2.00
—
1.33
Ricea
$/cwt
Aug-Jul
5.93
5.61
4.25
4.49
8.08
7.33
7.60-7.65
9.25-9.75
—
6.50
Soybeansa
$/bu
Sep-Aug
4.63
4.54
4.38
5.53
7.34
5.74
5.70
5.00-6.00
—
5.00
Soybean oilb
¢/lb
Oct-Sep
15.6
14.1
16.5
22.0
30.0
23.0
23.8
23.0-27.0
—
—
Soybean mealb
$/st
Oct-Sep
154.1
173.6
167.7
181.6
256.1
182.9
175.0
155-185
—
—
Cotton, Uplandc
¢/lb
Aug-Jul
45.0
49.8
29.8
44.5
61.8
41.6
47.8
— c
—
52.0
Choice Steersd
$/cwt
Jan-Dec
65.6
70.0
72.6
67.0
84.7
84.8
87.3
82-84
81-87
—
Barrows/Giltsd
$/cwt
Jan-Dec
34.0
45.3
45.8
34.9
39.5
52.5
50.1
45-46
39-42
—
Broilersd
¢/lb
Jan-Dec
58.1
56.2
59.1
55.6
62.0
74.1
70.8
64-65
65-70
—
Eggsd
¢/doz
Jan-Dec
65.6
68.9
67.1
67.1
87.9
82.2
65.5
69-71
75-81
—
Milkd
$/cwt
Jan-Dec
14.35
12.32
14.98
12.11
12.52
16.05
15.14
12.60-12.80
12.90-13.90
—
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) Aug. 11, 2006; — = no loan rate; and USDA’s out-year 2007/2008 crop price forecasts first appeared in the
May 2007 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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