HDR1011800400201227951400
AGRICULTURAL INCOME AND FINANCE                           December 27, 1995
               Approved by the World Agricultural Outlook Board
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AGRICULTURAL INCOME AND FINANCE Situation and Outlook is published four times a
year by the Economic Research Service, U.S. Department of Agriculture,
Washington, DC 20005-4788.  AIS-59.  Please note that this release contains
only the text of AGRICULTURAL INCOME AND FINANCE--tables and graphics are not
included.
 
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Net Farm Income May Rise in 1996, While Net Cash Income Declines
 
Net farm income is forecast at $37-$47 billion for 1996, compared
with the $39 billion forecast for 1995.  Both forecasts are below
the 1990-94 average of $44 billion.  Expected high crop cash
receipts and a forecast increase in inventories of unsold feed
grains underpin the 1996 forecast.  Net cash income is forecast
at $43-$53 billion, compared with  $51 billion forecast for 1995. 
An important reason why the net farm income forecast is generally
upward and the forecast for net cash income is generally downward
is that, in contrast to net farm income, net cash income excludes
changes in inventory.  The degree and direction by which
inventories change can swing widely depending on production and
marketing patterns.
 
Cash receipts from farm marketings are projected at $184-$192
billion in 1996, up from the $184 billion forecast for 1995. 
Both forecasts would be a record; the previous high was $180
billion in 1994.  Expected large feed grain production and strong
feed grain prices stemming from tight world supplies explain much
of the higher 1996 forecast.  Livestock receipts are expected to
remain flat.
 
Direct government payments for 1996 are forecast at $3-$5
billion, while the 1995 forecast is for $6 billion.  Expected
high feed grain prices are the main reason for the reduced
forecast.  Projected government payments for both 1995 and 1996
would be the lowest in the 1990's. 
 
Total production expense, used to calculate net farm income, is
forecast at $169-$177 billion in 1996, up from $168 billion in
1995.  Part of the forecast increase is tied to the expected rise
in planted acres.  High forecast feed grain prices and fewer
requirements to idle acreage in order to be eligible for
government farm program benefits should encourage heavy
plantings.  High feed grain prices could increase feed expense

for livestock producers, which is of special importance because
U.S. cattle numbers in 1996 could approach the large levels last
seen in the mid-1980's.
Higher nitrogen fertilizer prices could increase costs for crop
producers.
 
The value of agricultural assets is forecast at $985-$995 billion
for 1996, up 3 to 4 percent from 1995.  About four-fifths of the
increase is due to rising real estate values.  Expanding cash
receipts, generally good returns to assets, and favorable
interest rates are supporting continued growth in farm sector
capital investments.  Farm business debt could rise above $155
billion by the end of 1996, the highest level since 1986. 
However, interest expense could decline, as lower rates offset
the rise in debt.  Overall farm debt in 1996 should be about 60
percent of what farm income can support, also the highest level
since 1986.
 
Given trends developing for 1996--higher crop cash receipts, flat
livestock receipts, smaller government payments, and slightly
lower net cash income:
 
O  Net cash income could decline proportionally more on the
smallest farms than on the largest ones.  The smallest farms
traditionally earn a larger proportion of their income from
livestock sales and government payments.
 
O  Farms that specialize in red meat production could have
proportionally larger dips in their net cash income than other
types of farms.  Because they depend on livestock for about 90
percent of their income, farms specializing in red meat likely
will face higher feed expenses.
 
O  Midwestern farms could have proportionally smaller declines in
their net cash income compared with farms in other parts of the
country.  The Midwest is by far the Nation's largest producer of
corn and soybeans, the crops for which cash receipts are forecast
to increase the most.
 
A special article in this issue looks at the financial
performance of U.S. farm business in 1994. USDA's latest Farm
Costs and Returns Survey, shows that even though 1994 saw none of
the adverse weather that decreased production the year before,
net income from farming for the average commercial farm business
was up less than 1 percent.  While the year-to-year variation in
average income was not statistically significant, the composition
of net income did change.  Government payments were down
significantly.  The reduction in cash expenses offset the decline
in gross cash income and was enough for income to rise from an
average of $37,997 per farm  in 1993 to an average of $38,284 in
1994.  In 1994, 6 percent of commercial farm businesses were in a
vulnerable financial position based on their combined net farm
income and debt-to-asset ratios.
 
A second special article outlines the issues involved in
accounting for forestry product sales in farm income estimates.
 
Printed copies of Agricultural Income and Finance Situation and
Outlook will be available in about 2 weeks.  For more
information, contact Mitch Morehart (202) 219-0100.  Text of the
full report also will be available electronically.  For details,
call ERS Information Service (202) 219-0515.
 
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