Order Code RS21970
Updated April 17, 2008
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 rise to a record
$92.3 billion in 2008, over 4% above the previous year’s record ($88.7 billion) on the
strength of higher commodity prices, which are being driven by the outlook for
continued strong domestic and international demand and sharply lower stocks for major
grains and oilseeds.1 Consequently, the outlook for the U.S. farm economy as a whole
is for another year of record profitability as projected record agricultural cash receipts
of $313.2 billion (up $28 billion or 10%) more than offset record high production
expenses of $279.2 billion. Government payments are projected up over 11% in 2008
at $13.7 billion. An increase in ad hoc and emergency program payments are expected
to more than offset sharp declines in commodity program payments due to the projected
rise in crop prices which, in turn, are expected to reduce price-triggered marketing loan
benefits and counter-cyclical payments.
Total farm asset value of $2,514 billion and total farm debt of $228 billion are both
projected at record levels in 2007. However, the debt-to-asset ratio of 9.1% is down
sharply from last year’s value of 9.9% and represents 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
1 ERS’s 2007 farm sector income forecast, last updated on February 12, 2008, is available at the
Farm Income and Costs Briefing Room, at [http://www.ers.usda.gov/Briefing/FarmIncome/
nationalestimates.htm]. Because market prices have risen substantially since these estimates
were released (Table 2), it is likely that projections for farm income and receipts will be raised
significantly, while outlays for government programs will be lowered when USDA releases its
next farm income forecast.

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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
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 Income Outlook, 1960 to 2008F
Source: USDA, Economic Research Service, “2008 Farm Income Forecast,” at
[http://www.ers.usda.gov/Briefing/FarmIncome/]. Note: 2008 is projected.
Outlook for Calendar Year 2008
USDA’s net farm income estimate for 2008 of $92.3 billion is up 4% from last year’s
record $88.7 billion (Table 1). When measured in cash terms, net cash income in 2008
is projected up nearly 11% to $96.6 billion, well above 2007’s record $87.6 billion
(Figure 1). From a historical perspective, the past six years, 2003 through 2008, have
been exceptionally profitable years in terms of national net cash income averaging nearly
$82 billion per year during that period. The major agricultural producing regions are flush
with cash and faced with the outlook for continued high crop prices well into 2008 and
beyond.

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Cash Receipts. The combined value of cash receipts from marketings of both
crop and livestock commodities is projected at $313.2 billion in 2008, the highest amount
on record — up $28 billion from the previous year’s record of $285.4 billion — and
driven entirely by higher crop prices. While crop farmers rejoice, livestock feeders are
concerned by the escalating costs of feed.
Crops. The U.S. ethanol industry has grown rapidly since mid-2004, when
production capacity was estimated at around 3 billion gallons per year.2 The U.S. ethanol
sector received a substantial boost in December 2007 when the Energy Independence and
Security Act was signed into law [EISA; P.L. 110-140]. EISA greatly expands the
mandate for corn-based ethanol use from 4.7 billion gallons in 2007 to 9 billion in 2008
and 15 billion by 2015. This has pushed corn and other crop prices sharply higher.
USDA estimates that nearly 25% of the 2007 corn crop will be used to produce ethanol
during the 2007/08 (September-August) corn marketing year, and that this share will grow
to 33% in 2008/09.3 Higher corn prices have had the effect of raising prices for other
field crops, primarily soybeans, that compete with corn for planted area (Table 2).
In addition to strong domestic demand, strong export demand, aided in part by a
weak dollar, is expected to draw stocks for major grains and oilseeds to historically low
levels in 2008, thus supporting higher market prices. Higher crop prices are expected to
generate record crop cash receipts in 2008 of $174.6 billion. Corn cash receipts alone are
projected at a record $48 billion. Cash receipts for other field crops as well as greenhouse
and nursery crops, are also expected to rise on strong sales volume.
Livestock. In contrast to the positive outlook for crops, the value of livestock
production is forecast down slightly at $138.7 billion in 2008, as higher prices for feed
crops (although beneficial for feed crop producers) raise feed costs for livestock
producers. However, continued strong market prices for most major livestock categories
— beef, poultry, dairy, and eggs — are projected to partially offset high feed costs and
keep cash receipts for livestock near the previous year’s record of $141.4 billion.
Government Payments. Government direct payments are forecast at
$13.4 billion in 2008, up slightly from $12.0 billion in 2007 but well below the record of
$24.4 billion in 2005. Higher projected market prices are expected to limit payments
under the two major price-triggered programs — counter-cyclical payments (CCP), which
are projected to decline to less than $1 billion, and marketing loan benefits (loan
deficiency payments, marketing loan gains, and certificate exchange gains), which are
projected to fall to less than $8 million in 2008.4 Fixed direct payments, whose payment
rates are fixed in legislation and are not affected by the level of program crop prices, are
estimated up slightly at $5.3 billion. Farm disaster assistance and emergency assistance
2 For more information see CRS Report RL32712, Agriculture-Based Renewable Energy
Production.
3 USDA, World Agricultural Outlook Board (WAOB), World Agricultural Supply and Demand
Estimates, Feb. 8, 2008; and USDA Long-Term Agricultural Projection Tables, Released
February, 2008.
4 For more information on commodity programs, see CRS Report RL33271, Farm Commodity
Programs: Direct Payments, Counter-Cyclical Payments, and Marketing Loans, by Jim Monke.

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payments — which have figured heavily in sectoral income in most of the previous 20
years (1989-2008)5 — are also projected up at $3.4 billion in 2008.
Production Expenses. Total production expenses are forecast at a nominal
record $279.2 billion in 2008, up $22.2 billion (9%) from last year’s record level. Higher
commodity prices are expected to push feed costs up substantially (nearly 18%), while all
other expense categories grow at a 7% year-to-year rate. Farm origin inputs, including
feed, account for 27% of average farm expenses, and are expected to rise by nearly 9%
in aggregate as projected lower livestock costs partially offset higher crop prices. Higher
costs for manufactured 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 17% of national average farm
operating expenses are projected up 14%, while interest charges (6% of operating
expenses) are projected up a modest 0.4%. 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 about 8%.
Farm Asset Values and Debt. Farm asset values — which reflect farm
investors’ and lenders’ expectations about long-term profitability of farm sector
investments — are projected up 13% in 2008 to a record $2,514 billion, on the strength
of continued growth in real estate values. Farm debt is projected to rise by a much
smaller 4% to a record $228 billion in 2008. As a result, farm equity (defined as asset
value minus debt) is projected at a record $2,286 billion, while the farm debt-to-asset ratio
in 2008 is expected to decline at a 49-year low of 9.1%. 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 $89,343 in 2008, up about 7% from the previous year’s record. Off-farm
income sources are expected to account for nearly 85% of the national average farm
household income in 2008, compared with about 15% from farming activities. However,
the share of income from farming increases with farm size (as measured by gross sales).
“Large” commercial farm households (farms with annual sales between $250,000
and $499,999), on average, obtained 60% of their total household income from farming
activities in 2007, while “very large” family farms (farms with annual sales in excess of
$500,000) obtained nearly 80% of household income on-farm. These two classes of farms
represented slightly less than 8% of family farms.6 Intermediate family farms (farms with
annual sales in excess of $100,000 but less than $250,000) represented about 28% of
family farms and obtained about 32% of household income from on-farm sources. The
remaining 64% 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.
5 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.
6 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
2003
2004
2005
2006
2007Fa
2008Fa
($ billions)
1. Cash receipts
215.6
237.3
240.7
239.3
285.4
313.2
Cropsb
109.9
113.7
115.9
120.0
143.9
174.6
Livestock
105.6
123.6
124.9
119.3
141.4
138.7
2. Government paymentsc
16.5
13.0
24.4
15.8
12.0
13.4
Fixed direct paymentsd
6.4
5.2
5.2
5.1
5.2
5.3
CCPe
2.3
1.1
4.1
4.0
1.2
0.9
Marketing Loan Benefitsf
1.3
3.5
7.1
1.8
0.9
0.0
Conservation
2.2
2.3
2.8
3.0
3.0
3.0
Ad hoc and emergency
3.1
0.6
3.2
0.3
0.6
3.4
All otherg
1.2
0.2
2.1
1.7
1.0
0.8
3. Farm-related incomeh
15.7
17.1
16.2
17.5
18.8
19.4
4. Gross cash income (1+2+3)
247.8
267.4
281.3
272.5
316.2
346.0
5. Cash expenses
177.6
185.2
195.5
204.7
228.6
249.4
6. NET CASH INCOME (4-5)
70.2
82.2
85.8
67.9
87.6
96.6
7. Total gross revenuesi
260.0
296.0
299.6
291.5
345.7
371.5
8. Total production expensesj
200.3
210.0
222.5
232.5
257.0
279.2
9. NET FARM INCOME (7-8)
59.7
85.9
77.1
59.0
88.7
92.3
Farm Assets
1,378.8
1,584.8
1,769.3
1,979.1
2,222.6
2,514.1
Farm Debt
175.1
183.0
193.2
207.3
219.9
227.9
Farm Equity
1,203.6
1,401.9
1,576.1
1,771.8
2,002.7
2,286.2
Debt-to-asset ratio (expressed as %)
12.7%
11.5%
10.9% 10.5%
9.9%
9.1%
2003
2004
2005
2006Fa
2007Fa
2008a
Average farm household income
$68,597 $81,596 $81,420 $80,331
$83,622
$89,343
Average U.S. household income
$59,067 $60,528 $63,344 $66,570
na
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/Briefing/FarmIncome/]; U.S.
farm income data updated as of Feb. 12, 2008.
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, 1998/1999-2007/2008F
%
Loan
Target
Commodity
Unit
Year 1999/2000 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07
2007/08F
Changee
2008/09F
rate
Price
Wheata
$/bu
Jun-May
2.48
2.62
2.78
3.56
3.40
3.40
3.42
4.26
6.55-6.75
56.1%
—
2.75
3.92
Corna
$/bu
Sep-Aug
1.82
1.85
1.97
2.32
2.42
2.06
2.00
3.04
4.10-4.50
41.4%
—
1.95
2.63
Sorghuma
$/bu
Sep-Aug
1.57
1.89
1.94
2.32
2.39
1.79
1.86
3.29
3.95-4.35
26.1%
—
1.95
2.57
Barleya
$/bu
Jun-May
2.13
2.11
2.22
2.72
2.83
2.48
2.53
2.85
4.00-4.10
42.1%
—
1.85
2.44
Oatsa
$/bu
Jun-May
1.12
1.10
1.59
1.81
1.48
1.48
1.63
1.87
2.50-2.60
36.4%
—
1.33
1.44
Ricea
$/cwt
Aug-Jul
5.93
5.61
4.25
4.49
8.08
7.33
7.65
9.96 12.05-12.35
22.0%
—
6.50
10.50
Soybeansa
$/bu
Sep-Aug
4.63
4.54
4.38
5.53
7.34
5.74
5.66
6.43
10.00-10.50
59.4%
—
5.00
5.80
Soybean oilb
¢/lb
Oct-Sep
15.6
14.1
16.5
22.0
30.0
23.0
23.4
31.0
50.0-54.0
67.6%
—
—
—
Soybean mealb
$/st
Oct-Sep
154.1
173.6
167.7
181.6
256.1
182.9
174.2
205.4
315-335
58.2%
—
—
—
Cotton, Uplandc
¢/lb
Aug-Jul
45.0
49.8
29.8
44.5
61.8
41.6
47.7
46.5
56.2c
20.9%
—
52.0
72.4
Choice Steersd
$/cwt
Jan-Dec
65.6
70.0
72.6
67.0
84.7
84.8
87.3
85.4
91.8
7.5%
88-92
—
—
Barrows/Giltsd
$/cwt
Jan-Dec
34.0
45.3
45.8
34.9
39.5
52.5
50.1
47.3
47.1
-0.4%
40-42
—
—
Broilersd
¢/lb
Jan-Dec
58.1
56.2
59.1
55.6
62.0
74.1
70.8
64.4
76.4
18.6%
78-82
—
—
Eggsd
¢/doz
Jan-Dec
65.6
68.9
67.1
67.1
87.9
82.2
65.5
71.8
114.4
59.3%
125-132
—
—
Milkd
$/cwt
Jan-Dec
14.35
12.32
14.98
12.11
12.52
16.05
15.14
12.90
19.13
48.3%
17.65-18.15
—
—
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) April 9, 2008; — = no loan rate; and USDA’s out-year 2008/2009 crop price forecasts will first appear in
the May 2008 WASDE report. WASDE reports are available at [http://www.usda.gov/oce/commodity/wasde/].
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-December 2007. 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.
e. Percent change from 2006/07, calculated using the difference from the midpoint of the range for 2007/08 with the estimate for 2006/07.

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