You have probably penciled in your own estimates for 2009 income, based on high production expenses and low commodity prices. Some of you will have a lot of red ink and some will have a small amount of black ink. Compared to your income for the past several years, there will be a lot of income averaging going on when you file your next tax return. That is because farm income will be off nearly 40% from 2008 as USDA figures it.

Rising prices in 2007 and high prices in 2008 are being met with lower prices in 2009 that will eaten up by relatively high production costs. The net effect is farm income at $54 billion for the US, compared to more than $87 billion in 2008. And compared to the average of last 10 years, USDA’s estimate for 2009 farm income is $9 billion below that average. USDA economists released a preliminary estimate of farm income for the current year, saying:

• 2007 increase in farm expenses of $34.8 billion and 2008 increase in farm expenses of $22.5 billion were the largest year over year changes on record.
• 2009 expenses will be down $9.2 billion from 2009, but still 5% more than 2007.
• Cash receipts will decline $40.3 billion from 2008.
• Crop receipts have increased more than 20% in each of the last two years, but will drop $18 billion below 2008 levels.
• Livestock receipts will decline $22.2 billion from 2008, which is nearly 16%.

2008 income was helped by a strong global demand and expanded markets, before falling late in the year due to recessionary pressures. Farm income began to fade late in 2008 when farmers were forced to accept lower commodity prices. With abundant crops and high prices in 2008, crop receipts were high, but in 2009 the value of crop production is expected to decline 9.8% from last year. With a substantial drop in milk prices and declining export demand for US meat products, the value of livestock production in 2009 is projected to be down 15.6% in 2009.

For grain sales, cash receipts will be down almost 29%, pushed hard by a 35% drop in wheat receipts alone. Corn receipts will be down 19.6%. Soybean and other oil crop receipts will be about level from 2008, says USDA because of forward contracts early in the year when prices were lower. Cash receipts for livestock are forecast at $119 billion, a 15.7% drop from 2008, due in large part to a soft milk market that has receipts some 34% lower than 2008. USDA looks for a 10% drop in cash receipts for cattle and calves and a 13% drop in cash receipts for hogs.

USDA says the cost of inputs in 2009 will be lower than the $290 billion in 2008, particularly for feed, fertilizer and fuel, but the reduction in gross income will far exceed the reduction in production costs, leaving all measures of income below the records established in 2008. The drop in production expenses would be the first since 2002. Despite the decrease, forecast expenses for 2009 would constitute the largest percentage of gross farm income, 84%, since 1984.

Feed costs will be lower by nearly 7%, after rising 67% the past two years. While corn and soybean meal make up most of the feed price, and they are both down 16% for the year, the cost of complete feed is up 15% for the year.

Crop production expenses went up 21% in 2008 and will fall 6% for this year, primarily from 25% lower fertilizer prices. Seed expenses climbed 26.5% in 2008 and another 15.5% in 2009. Specifically, seed corn is up 31.5% over last year and seed beans are up 24.5%. Fuel and oil expenses will be 30% less this year than last year, after a 207% jump between 2002 and 2008.

Something going up in 2009 will be payments made to landowners, laborers, and lenders, and that increase will be slightly less than 6%. Labor will cost 5% more this year, interest costs will be up 7% over 2008, and cash rents and other payments to landowners will be up 11%. While government payments will be up $400 million from 2008, the $12.6 billion being paid out is 20% under the average of 2004 to 2008. The bulk of the payments will be for milk, tobacco, cotton, rice, and peanuts. Direct payments are $5.15 billion.

Farm bank accounts will be taking a major hit in 2009 because of lower commodity prices and the fact that production expenses did not drop as much as commodity prices fell. USDA’s projection for 2009 income will be 38% under 2008, and will be less than the average for the prior 10 years. While expenses such as fertilizer and fuel are considerably less expensive than in 2008, and feed prices are down for livestock operators, the market prices for commodities declined at a faster rate, including a 35% decline in wheat, and nearly 20% decline in corn receipts.

Source: Stu Ellis, University of Illinois