Farm income stays ahead of input costs

States producing corn, soybeans, wheat benefit from rising prices

Scott A. Yates
Capital Press
February 22, 2008

Net farm income in 2008 is expected to be 51 percent above its 10-year average, plenty for farmers to make a profit even with rising input costs, which, by the way, are expected to be 34 percent above their 10-year average.

The Economic Research Service of the U.S. Department of Agriculture said given the diversity of U.S. agriculture, changes in farm income are not necessarily distributed evenly throughout the nation. As the ERS report of Feb. 12 put it: States that are leading producers of corn, soybeans and wheat stand to benefit the most with prices for their product rising faster than most other commodities and their expenses rising roughly in line with other crops.

If the $92.3 billion in net farm income U.S. agriculture earned this year is the sun, the $71 billion in expenses farmers paid are the clouds. History says today's high commodity prices will eventually fall back toward Earth; no one has a handle on input costs.

By the end of 2008, the ERS forecasts that fuel prices will have risen 159 percent since 2002. And that's not the scary part. The ERS said fertilizer costs are driving the current increase in expenses and may be a greater concern for farmers than fuel.

Following a $2.7 billion, 20 percent increase in 2007, fertilizer expenses are forecast to rise $3 billion in 2008. The prices for potash and phosphate alone rose nearly 57 percent during 2007.

The low dollar is helping out farmers' bottom line by exerting a greater demand for U.S. exports. This demand helps boost farm prices enough to offset increases for imported fuel, nitrogen and potash.

Although the Northwest has largely escaped the seed technology effect, seed prices have been rising throughout the rest of the nation as a result of biotech traits bred into corn and soybeans. Between 2006 and 2008, seed costs are estimated to rise 14.3 percent.

Pesticide expenses are on their way up, too, with a projected increase of 11 percent in 2008. Prices paid for pesticides are projected to be 9 percent of that increase.

The expense leader, however, is feed, projected to rise 18.2 percent in 2008 to a record high $45 billion. The primary cause of the rise in feed expenses is the projected increase in corn and soymeal prices. Corn accounts for 91 percent of feed grains used for feed, and soymeal is the principal oil crop product used as feed.

At the end of 2007, corn prices were at record levels, and the ERS forecasts them to continue climbing throughout 2008. Soymeal prices are also at record levels and are projected to remain high.

Another cloud on the horizon is ongoing drought in several regions, including the mountain West. Farmers in regions with significantly lower yields benefit less from high commodity prices since they have less to sell. The report also warned that farmers in drought regions typically see a greater rise in production costs for things like irrigation, feed and hay.

"When gross farm income is lower and production costs are higher, net income for individual producers can quickly turn negative for operations mired in drought conditions," the report said.

Despite the clouds, the silver lining in 2008 shows average farm household income is almost 20 percent above its five-year, 2002-06 average.

Projected off-farm income of $75,805 in 2008 accounts for nearly 85 percent of the average farm operator's household income.

Staff writer Scott Yates is based in Spokane . E-mail: syates@capitalpress.com.

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