What is in this article?:
• Farm household debt levels appear to have stabilized despite increasing land values.
• While prospects generally look bright, recent sharp increases in prices for major crops are generating a range of concerns.
Major factors in strong growth
Economic growth and a weaker dollar have been major factors in the strong growth in agricultural trade and these factors are expected to continue in 2011. Inflation remains a source of concern. China, Brazil, India and South Korea have all boosted interest rates this year to combat inflationary pressures caused by higher commodity prices and tightening labor markets.
There is a small risk that overly tight monetary policy could slow income growth which could modestly impact exports. In Europe, the bailouts of Ireland and Greece appear to have been thus far successful and have neither curtailed near-term European growth nor brought a stronger
dollar relative to the euro.
Farm income to rise
Recently updated forecasts from the Economic Research Service project cash receipts for producers at a record $341 billion in 2011, up $28 billion from 2010 and $57 billion from 2009.
Cash production expenses are forecast to be a record $274 billion in 2011, up $20 billion from 2010 and $25 billion from 2009. With receipts rising faster than expenses, net cash farm income is forecast at a nominal record of $99 billion this year, up $7 billion from last year and nearly $30 billion from 2009. After adjusting for inflation, five of the highest income years since 1976 have occurred during 2004-11 (2004, 2005, 2008, 2010, and 2011).
The balance sheet of U.S. agriculture is expected to strengthen again in 2011. Consistent with recent trends, increases in debt are forecast to be offset by larger increases in farm asset values. ERS expects the total value of farm assets to increase by 6.1 percent in 2011 with the value of farm real estate to increase by 6.3 percent. What is astonishing is that in two years, the farm economy has essentially rebuilt the equity lost in 2009. As a result, the farm sector’s debt-to-asset ratio should drop further below last year’s 11.3 percent in 2011.
High prices will result in strong competition for acreage
More land is expected to be planted to the major field crops in 2011, reflecting the sharply higher prices for most crops. Total area planted to the eight major field crops (wheat, corn, barley, sorghum, oats, soybeans, rice and upland cotton) is forecast to at nearly 255 million acres, an increase of 9.8 million acres over 2010 levels.
If this forecast is realized, planted acreage for the 8 crops would be the highest since 1998 though still well short of the more than 260 million acres planted in 1996. The net increase of 9.8 million acres would be the largest year-to-year change since 1996 when 15 million additional acres were planted to the 8 crops.
Winter wheat seeded area this past fall totaled 41 million acres, an increase of 3.7 million acres over last year’s levels. Yet despite a 70 percent increase in futures prices for spring wheat over year ago levels, it is expected that spring wheat (including durum) area may fall slightly from last year’s 16.3 million acres. High prices and more favorable net returns for oilseeds, particularly canola and soybeans in North Dakota, should discourage spring wheat expansion.
This would leave total 2011 wheat area at 57 million acres, an increase of 3.4 million acres over last year.