November 27, 2003

 

2012 Net Farm Income Studied

Net farm income for some farms in 2012 will be lower than the 2000-02 average, according to three North Dakota State University researchers. Net farm income for a large-size farm is predicted to decrease from $116,488 to 110,634 but net farm income for a medium-size farm will increase from $61,270 to $64,407 in 2012.

"Net farm income for a small-size farm will remain approximately the same from $30,468 from the 2000-02 average to $31,737 in 2012, according to Richard Taylor, NDSU Center for Agricultural Policy and Trade Studies research scientist. "The level of farm income will not be maintained because production expenses are rising faster than yields. The most important component in net farm income seems to be production volume."

Co-authoring the study was: Won Koo, Center director and Andy Swenson, Extension farm and family resource management specialist.

Although net farm income differs among farms in the various profit categories, income for some will decrease from the 2000-02 average to 2012 period, according to the study. Net farm income is predicted to decrease from $147,000 to $128,000 for the high-profit farm and from $55,000 to $44,000 for the average-profit farm.

A low-profit farm will see an increase from $7,500 to $12,000. "However, low-profit farms, which comprise 25 percent of the study, may not have the financial resiliency to survive unless substantial off-farm income is earned," Taylor says. "The operator may wish to investigate other investment opportunities in which higher returns can be earned or markedly restructure the farming operation to improve profitability."

Under the current farm bill, price risk is transferred from the producer to the federal government. The transfer of price risk to the federal government is not a new measure, Taylor says. Previous farm bills had target prices and marketing loans. If prices are 10 percent lower than forecasted prices, net farm income will fall about 3.6 percent; however, government spending will increase about 26.5 percent.

If farm prices are 10 percent higher than forecasted, net farm income will increase about 4.3 percent and government spending will decrease 25.2 percent. "The counter-cyclical features of the farm bill insulate producers from price increases and decreases," Taylor says. "The government provides adequate price support, but production support through crop insurance is substantially less."

Debt-to-asset ratios for all farms are predicted to increase slightly throughout the forecast period. Debt-to-asset ratios are expected to increase to 34 percent for the large-size farm, 37 percent for the medium-size, and 50 percent for the small-size farm by 2012. The ratios are also projected to increase to 41 percent for the high-profit farm, 47 percent for the average-profit and 61 percent for the low-profit farm in 2012.

For the average-profit farm, state average cropland prices and cash rents will increase slightly over the period. "State average cropland prices will increase 4.7 percent from $483 per acre in 2003 to $506 per acre in 2012. Cash rents will increase 4.4 percent from $40 per acre in 2003 to $41 per acre in 2012.

The net farm income outlook for the 2003 to 2012 period is based on the baseline results produced by the Food and Agricultural Policy Research Institute global model and the North Dakota Global wheat Policy Simulation Model.

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Source: Won Koo, (701) 231-7448, wkoo@ndsuext.nodak.edu
Richard Taylor, (701) 231-7990, staylor@ndsuext.nodak.edu
Andy Swenson, (701) 231-7379, andrew.swenson@ndsu.nodak.edu
Editor: Rich Mattern, (701) 231-6136, richard.mattern@ndsu.nodak.edu