Order Code RS21970
Updated January 12, 2007
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 decline in 2006
following three years of robust receipts and income.1 Net farm income is forecast to
decline by $14.9 billion (or 20%) to $58.9 billion in 2006 due to a decline in
government payments (down $7.8 billion) combined with a sharp rise in production
expenses (up $11.2 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 partially offset by 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 feed and 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 $218 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 Nov. 29, 2006, is available at the Farm
Income and Costs Briefing Room, at [http://www.ers.usda.gov/Briefing/FarmIncome/national
estimates.htm].

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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
300
Gros s Cas h Inc
250
Cas h ex pens es
Net Cas h Inc ome
200
150
100
50
0
1960
1970
1980
1990
2000
Source: USDA, Economic Research Service, “2006 Farm Income Forecast,” at
[http://www.ers.usda.gov].
Note: 2006 is projected.
Outlook for Calendar Year 2006
Net farm income estimates for 2006 of $58.9 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 $66.6 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 $242 billion in 2006, the highest amount
on record and up $3 billion from the previous year’s record $238.9 billion. Farm cash
receipts experienced sharp variation in sources in 2006 as record crop receipts, up $7.3
billion, were partially offset by a projected $4.2 billion decline in livestock receipts.

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Crops. Dry weather across the Plains states, western Corn Belt, and parts of the
southeastern United States reduced harvests in 2006 for several major field crops: wheat,
sorghum, barley, oats, and cotton. Corn and rice crops were also lower, due primarily to
declines in planted and harvested area. Soybeans were the exception as U.S. producers
harvested a record 2.3 billion bushels in 2006. However, the reduced grain production
outlook coupled with steady to higher demand has pushed crop prices up substantially
from 2005’s relatively low levels for nearly all grain and oilseed crops (Table 2). Rapid
growth in corn-based ethanol production in 2006, coupled with an outlook for continued
strong expansion in both production and production capacity of ethanol have helped to
fuel a dramatic runup in grain and oilseed prices since September 2006. Preliminary
2006/2007 projections for corn call for continued robust demand growth from the ethanol
sector, which is projected to use 20% 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 $121.2 billion. Wheat cash receipts are
projected at a record $7.4 billion. Cash receipts for fruits and nuts, vegetables, and
greenhouse and nursery crops are also expected to rise on strong sales volume.
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 $4.2 billion to $120.7 billion.
Government Payments. Government direct payments are forecast at
$16.5 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 limit 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 $0.8 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. Fixed direct payments, whose payment rates are fixed in legislation and are
not affected by the level of program crop prices, are estimated unchanged at $5.2 billion.
Conservation payments are projected up slightly at $2.9 billion. The gradual rise in
conservation payments since 2001 reflects programs being brought up toward authorized
funding levels.
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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Production Expenses. Total production expenses are forecast at a record $237.2
billion in 2006, up $11.2 billion (5.0%) from last year’s record level. Higher costs for
manufactured inputs, farm origin inputs, interest charges, and general operating expenses
all contributed to the surge in costs. Manufactured inputs — such as fuel, fertilizer,
electricity, and pesticides — that account for about 16% of national average farm
operating expenses are projected up 7%, while interest charges (7% of operating
expenses) are projected up 8%. 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. Finally, other operating expenses (e.g., repair and maintenance, hired labor,
hired custom work, etc.) account for one-third of operating expenses and are also
projected to rise by 5%.
Farm Asset Values and Debt. Despite the relative declines in net cash income
and government payments, farm asset values are projected up 6.3% (or $114.2 billion) in
2006 to a record $1,919 billion, on the strength of higher real estate values. Farm debt
is projected to rise by a much smaller 1.8% (or $2.5 billion) to a record $218 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 $80,703 in 2006, down about 1% from 2005. Off-farm income sources are expected
to account for nearly 85% of the national average farm household income in 2006,
compared with about 15% from farming activities. However, the share of income from
farming increases with farm size (as measured by gross sales).
Commercial farm households (farms with annual sales in excess of $250,000), on
average, obtain 76% of their total household income from farming activities. This
grouping includes “large” family farms (farms with annual sales between $250,000 and
$499,999) and “very large” family farms (farms with annual sales in excess of $500,000).
Large family farms obtained 63% of their total household income from farming activities
in 2005; while “very large” family farms obtained 79%. These two classes of farms
represented slightly less than 8% of family farms, but accounted for 74% of total
production value in 2005.4
Intermediate family farms (farms with annual sales in excess of $100,000 but less
than $250,000) represented about 23% of family farms and obtained about 16% of
household income from on-farm sources. The remaining 69% of family farms are
classified as rural residence farms and either receive little or no income from farm sources
or their total income level qualifies them as limited-resource farms.
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
Commodity
2001
2002
2003
2004
2005Fa
2006Fa
($ billions)
1. Cash receipts
200.1
195.0
215.5
237.9
238.9
242.0
Cropsb
93.3
101.0
109.9
114.3
114.0
121.2
Livestock
106.7
94.0
105.6
123.6
125.0
120.7
2. Government paymentsc
20.7
12.4
16.5
13.0
24.3
16.5
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
2.0
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
0.8
All otherg
0.1
1.9
1.2
0.2
2.1
1.5
3. Farm-related incomeh
14.8
14.8
15.7
16.9
17.6
18.6
4. Gross cash income (1+2+3)
235.6
222.2
247.8
267.8
280.9
277.1
5. Cash expenses
175.5
171.6
177.8
186.3
199.7
210.5
6. NET CASH INCOME (4-3)
60.1
50.7
70.0
81.5
81.2
66.6
7. Total gross revenuesi
248.7
233.6
260.9
296.2
299.8
296.1
8. Total production expensesj
197.1
193.4
200.4
210.8
226.0
237.2
9. NET FARM INCOME (7-8)
51.5
40.2
60.4
85.4
73.8
58.9
Farm Assets
1,255.9
1,304.0
1,378.8
1,584.8
1,805.3
1,919.3
Farm Debt
185.7
193.3
198.0
201.7
214.1
218.0
Farm Equity
1,070.2
1,110.7
1,180.8
1,383.1
1,591.2
1,701.5
Debt-to-asset ratio (expressed as %)
14.8%
14.8%
14.4%
12.7%
11.9%
11.3%
2001
2002
2003
2004
2005Fa
2006Fa
Average farm household income
$63,983 $65,761 $68,597 $81,596
$81,420
$80,703
Average U.S. household income
$58,208 $57,852 $59,067 $60,528
$63,344
na
Source: USDA, Economic Research Service, briefing rooms: Farm Income and Costs: Farm Sector
Income, and Costs: Farm Sector Income, available at [http://www.ers.usda.gov/]; U.S. farm income data
updated as of Nov. 30, 2006.
na = not available.
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 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
4.15-4.55
—
2.75
Corna
$/bu
Sep-Aug
1.82
1.85
1.97
2.32
2.42
2.06
2.00
3.00-3.40
—
1.95
Sorghuma
$/bu
Sep-Aug
1.57
1.89
1.94
2.32
2.39
1.79
1.86
3.00-3.40
—
1.95
Barleya
$/bu
Jun-May
2.13
2.11
2.22
2.72
2.83
2.48
2.53
2.75-3.05
—
1.85
Oatsa
$/bu
Jun-May
1.12
1.10
1.59
1.81
1.48
1.48
1.63
1.75-1.95
—
1.33
Ricea
$/cwt
Aug-Jul
5.93
5.61
4.25
4.49
8.08
7.33
7.62
9.70-10.00
—
6.50
Soybeansa
$/bu
Sep-Aug
4.63
4.54
4.38
5.53
7.34
5.74
5.66
5.75-6.45
—
5.00
Soybean oilb
¢/lb
Oct-Sep
15.6
14.1
16.5
22.0
30.0
23.0
23.4
26.5-28.5
—
—
Soybean mealb
$/st
Oct-Sep
154.1
173.6
167.7
181.6
256.1
182.9
174.2
170-185
—
—
Cotton, Uplandc
¢/lb
Aug-Jul
45.0
49.8
29.8
44.5
61.8
41.6
47.7
46.4c
—
52.0
Choice Steersd
$/cwt
Jan-Dec
65.6
70.0
72.6
67.0
84.7
84.8
87.3
85.4
82-88
—
Barrows/Giltsd
$/cwt
Jan-Dec
34.0
45.3
45.8
34.9
39.5
52.5
50.1
47.3
42-44
—
Broilersd
¢/lb
Jan-Dec
58.1
56.2
59.1
55.6
62.0
74.1
70.8
64.4
66-71
—
Eggsd
¢/doz
Jan-Dec
65.6
68.9
67.1
67.1
87.9
82.2
65.5
71.0
78-84
—
Milkd
$/cwt
Jan-Dec
14.35
12.32
14.98
12.11
12.52
16.05
15.14
12.91
13.60-14.40
—
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) Jan. 12, 2007; — = 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 average crude for soybean oil, and simple average 48% protein for soybean meal.
c. Average farm price received for August-November 2006. 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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