U.S. Farm income could nosedive in ’05

By Daniel Grant –
Farmers who enjoyed a highly profitable season last year likely can expect more of a “normal” year in 2005.
A baseline projection from the Food and Agricultural Policy Research Institute (FAPRI) — a joint effort between the University of Missouri and Iowa State University — is calling for U.S. net farm income to nosedive from $74 billion in 2004 to $59 billion this year.

“We project a trend line that is more normal,” said Pat Westhoff, FAPRI policy analyst.
Net farm income ballooned in 2004 due to a variety of factors, including record crop yields, record livestock prices, and lower fall prices that triggered countercyclical payments.
Thirteen percent of Illinois’ gross farm income reportedly was derived from government payments in 2004, compared to 7 percent in 2003.
With so many factors coming together last year, a “decline in income is almost inevitable” this year, said Illinois Farm Bureau senior economist Mike Doherty.
“I’d say low commodity prices are a given this crop year unless there’s a disaster somewhere,” Doherty said.
He said lower commodity prices and higher input costs are two key reasons why farm income likely will decline in 2005 compared to last year. Input prices for all production items rose by 5.3 percent in 2004, according to FAPRI.
“All in all, it looks like we’re back to more normal prices, which is going to feel pretty bad after last year,” Doherty said.
Fortunately, the FAPRI study projects farm income to remain above $50 billion annually, which would surpass the average level of the decade prior to 2004.
But such a forecast is based in part on normal weather and the continuation of current government policies. And it’s still nowhere close to the 2004 level.
“That’s one more reason not to allow the returns of 2004 to be blown out of proportion as some kind of evidence we do not need price supports and risk-reducing programs,” Doherty said.
“Looking at the average income over many years, we do need those programs for farmers.”
Along with more normal weather and the continuation of current farm policy, the FAPRI farm income projection also assumes normal trade for beef and cattle imports with Canada and that beef trade with Japan and Korea will resume before the end of 2005.
Source: Farm Week