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Farm Income Prospects Improved

March 19, 1990

WASHINGTON (AP) _ Prospects for farm income have improved from earlier 1990 economic forecasts, an Agriculture Department report showed Monday.

″Combined with continuing strong demand for agricultural products, currently higher prices due to tighter corn stocks and smaller hog inventories have brightened the outlook,″ the report said.

Analysts also said that the bulk of federal payments, which figure prominently in annual farm income statistics, continue to go to a relative handful of larger farming operations.

Overall, the net cash income of farmers was forecast at $54 billion to $58 billion this year, up from $53 billion in 1989. The record was $57.2 billion in 1988. Previously, the department’s Economic Research Service had put 1990 income in the range of $52 billion to $57 billion.

As used by the agency, net cash income ″measures the value of commodities sold in a calendar year plus government payments, less out-of-pocket costs.″ Commodities sold may actually have been produced in earlier years and stored until marketed.

In another method of accounting, the report said net farm income is expected to be in the range of $45 billion to $49 billion, steady to down 8 percent from last year’s $49 billion. Previously, it was forecast at $44 billion to $49 billion.

Economists use net farm income to measure the value of agricultural production - whether sold or stored - in a calendar year plus government payments, minus all costs, including depreciation and other factors.

″Net farm income may drop as feed grain prices ease from the spikes caused by the 1988 drought,″ the report said. ″The lower prices will dampen the value of the fall harvest. Much of the fall 1990 harvest will be sold in 1991.″

The report said an analysis of USDA’s 1988 Farm Costs and Returns Survey showed that direct payments to farmers have been ″distributed on the basis of production″ as prescribed by current farm law.

″Of farms receiving direct government payments, 32 percent received 90 percent of the payments,″ the report said. ″Since 64 percent of all farm receive no direct payments, 90 percent of the payments go to only 12 percent of all farms.″

Greg Gajewski, senior editor of the report, said there was no surprise in the breakdown of federal subsidies and that the pattern fit the trend.

Direct federal payments to farmers peaked at about $16.7 billion in 1987, according to the agency, then dropped to $14.5 billion in 1988 and to around $11 million in 1989 as market prices improved, thus reducing many of the subsidy rates. A further reduction to as low as $8 billion is expected this year.

The report also said that ″improved weather has brightened prospects″ for the U.S. winter wheat crop.

″Early indicators in Western Europe, Canada and Australia point to wheat production gains there as well,″ the report said. ″Wheat prices are falling.″

In Asia, a bumper 1989-90 rice crop is being harvested, with record or near-record output forecast for China, Bangladesh, Vietnam, Thailand and India.

″But U.S. stocks are low, and the Thais are holding stocks back for sale later in the year,″ the report added. ″So, prices remain strong and U.S. exports are slowing.″

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