Kentucky’s farm economy is likely to see record cash receipts this year and again in 2008, but farmers’ profits may not attain such lofty levels, say agricultural economists with the University of Kentucky College of Agriculture.

UK agricultural economists are predicting farm receipts for 2007 to reach a record $4.22 billion despite freeze and drought conditions that impacted several sectors of the farm economy. Barring any major weather or disease problems in 2008, receipts could grow to $4.29 billion, said Will Snell.

Economist Snell noted increasing production costs, and lower government payments could more than offset the increase in cash receipts, resulting in less net farm income than the record set in 2005. That being said, Snell noted that net income will still be very strong this year and next compared to historical standards. Kentucky’s net farm income was fueled in 2005, and to a lesser extent in 2006, by a large number of lump sum payments from the federal tobacco buyout program, he said.

Leading the way is the state’s livestock sector which represents nearly two-thirds of the state’s 2007 cash receipts. Estimated at $3 billion, this is a 10.9 percent increase from the past year and livestock receipts are expected to climb again in 2008.

Horses, poultry and cattle registered significant gains. Equine was the biggest contributor at $1.1 billion.

The growth in cash receipts is not evenly distributed across the state. Growth has taken place primarily in the west with strong grain markets, growth in the poultry industry, and the movement of tobacco from the Bluegrass and eastern Kentucky regions to west Kentucky, Snell said. Whereas cash receipts driven by lower tobacco production, have dropped in eastern Kentucky.

Snell, along with fellow economists Lee Meyer, Kenny Burdine and Tim Woods, presented an overview and outlook of the Kentucky farm economy as part of the annual Kentucky Farm Bureau Federation conference.

Due to poor growing conditions, Kentucky’s cash receipts from crops are down 6.5 percent. Bucking that trend is higher cash receipts from corn, reflecting a significant increase in acreage in 2007 coupled with higher prices. The state’s receipts from fruit and vegetable crops also were reduced somewhat by a spring freeze and drought.

Snell said there’s a lot of excitement and enthusiasm in the farm sector, but in the back of people’s minds there’s a nagging feeling of having been here before only to see the cycle change and prices decline. Helping to fuel the farm economy are strong demand from exports, due in part to the low dollar, and the renewable fuels push.

But challenges and uncertainties that can play a role include the outcome of U.S. energy policy and oil markets on grain economies, the long-term impact of the renewable energy boom on the livestock sector, declining tobacco buyout money, trade policy, future government farm payments and policy, immigration reform and production costs.

“Not only are we looking at the all-time high prices for a lot of our commodities, but we are also looking at the largest increase in production expenses and that’s certainly a concern as we look at what direction the future of Kentucky’s agricultural economy may take,” Snell said.

“I think we all realize there are a lot of challenges and uncertainties about what may lie down the road in 2008,” he said. “There’s a lot of enthusiasm, but we need to all be better managers, keep a close eye on our production costs, keep a close eye on what’s happening in the global picture, and with farm policy issues in Washington, D.C.”

A copy of the outlook publication including information on individual farm sectors can be found at http://www.uky.edu/Ag/AgEcon/pubs/ext_other/2008KYOutlook.pdf.