[Agriculture Fact Book 98]
Labor use on U.S. farms has changed dramatically over the past several decades. Average annual farm employment dropped from 9.9 million in 1950 to 2.9 million in 1997. This decrease resulted largely from the trend toward fewer and larger farms, increased farm mechanization and other technological innovations, and higher off-farm wages. However, farm employment appears to have stabilized in recent years as increases in mechanization and labor-saving technology have leveled off and the downward trend in farm numbers has slowed.
Family workers, including farm operators and unpaid workers, accounted for 69 percent of farm labor in 1997, while hired farmworkers accounted for 31 percent. Service workers, including crew leaders and custom crews, accounted for 9 percent of all workers on farms in 1997.
The average wage rate for hired farmworkers in the United States in 1997 was $7.36 per hour. Wages varied by State, ranging from a low of $5.69 per hour in Wyoming to a high of $10.13 per hour in Hawaii.
Labor comprises a significant portion of total farm production expenses. The 1992 Census of Agriculture reported the expenditures for hired and contract labor on U.S. farms were $15.3 billion in 1992, or almost 12 percent of total farm production expenses. About 36 percent of all farms had hired labor expenses and 12 percent had contract labor expenses.
The importance of labor varied significantly by farm type and size of farm. The proportion of total farm production expenses attributed to hired and contract labor was greatest on horticultural specialty farms (45 percent), fruit and tree nut farms (40 percent), and vegetable and melon farms (37 percent). These types of farms are the least mechanized, and many of the commodities they produce are still harvested by hand. At the other extreme, labor expenses comprised less than 5 percent of all production expenses on beef cattle, hog, sheep, poultry, and cash grain farms.
Larger farms are more likely to have labor needs in excess of that provided by the family farm. Farms of 260 or more acres, which accounted for only 32 percent of all farms, had 70 percent of all labor expenses in 1992. In terms of sales class, the 27 percent of all farms with $50,000 or more in value of products sold accounted for 95 percent of all labor expenses.
Farm business debt at the end of 1996 was $156.2 billion, up $5.1 billion from 1995. Farm real estate debt rose $2.4 billion from 1995 to $81.9 billion at the end of 1996. Farm business non-real-estate debt was $74.2 billion at the end of 1996, up 4 percent from 1995. The increase in farm debt in 1996 is slightly higher than the recent trend of modest growth in outstanding loan balances.
Farmers and lenders, despite concern about reduced short-term profitability in some livestock enterprises, maintain confidence in the long-run profitability of agriculture. The availability and use of credit play a significant role in the sustained profitability of farm enterprises. In this regard, a symbiotic relationship exists between agricultural producers and their lenders; the health of one depends on the condition of the other.
Loans made to agricultural producers are classified as real estate and non-real-estate loans in the farm sector accounts. Real estate loans generally have terms of 10 to 40 years, and are ordinarily used to purchase farmland or to make major capital improvements to farm property. Non-real-estate loans are typically made for loan terms of less than 10 years, with the term depending on the purpose of the loan. Seasonal operating loans are made for less than 1 year, while loans to purchase machinery and equipment or livestock may run for 7 years or more.
At the end of 1996, the Farm Credit System held $25.8 billion in farm business real estate loans and $14 billion in non-real-estate loans. In total, the Farm Credit System held about 25 percent of farm business loans. While the Farm Credit System has lagged behind commercial banks in increasing loan balances and in gaining market share, it continues to report improved financial performance. Favorable interest rate spreads improved their earnings during 1990-96. Improved borrower financial conditions have translated into improved Farm Credit System performance.
Commercial banks held about 40 percent of all farm business debt by the end of 1996, accounting for $23.4 billion in real estate loans (28 percent of total) and $39.8 billion in nonreal estate debt (52 percent). Life insurance companies maintained their presence in the agricultural credit market, as their total farm business debt rose slightly to $9.5 billion, giving them a 12- percent share of the farm business mortgage market. Farm Service Agency (which includes part of the former Farmers Home Administration) direct loans to farm businesses dropped by $1 billion in 1996. The "Individuals and others" classification is composed primarily of sellers financing the sale of farmland, input suppliers, farm machinery finance corporations, and some minor lending agencies. These accounted for $18 billion in real estate loans and $17.4 billion in non-real-estate loans at the end of 1996.
Farm business asset values are estimated to have totaled $1,034.9 billion on December 31, 1996, an increase of 5 percent over the preceding year. Farm business debt rose 3 percent during 1996, totaling $156.2 billion at year's end. As a result, farm business equity is estimated to have risen 3 percent. Average equity per farm on December 31, 1996, is estimated to have been $426,000.
The resulting debt-to-asset ratio for 1996 (expressed as a percentage) decreased from 15.3 to 15.1. This ratio is substantially below the peak of 24 percent reached in 1985.
Real estate assets accounted for 78 percent of the value of farm business assets at the end of 1996. Real estate assets were expected to have increased 6 percent during the year. The average real estate value per farm was $390,000 on December 31, 1996.
Non-real-estate assets are estimated to have increased 2 percent during 1996. Decreases in value were for machinery and motor vehicles, purchased inputs, and financial assets. The value of crops stored, and of livestock and poultry were estimated to have increased in 1996.
Farm business real estate debt increased slightly in 1996, standing at $81.9 billion at the end of the year. Non-real-estate debt rose 4 percent to $74.2 billion. On December 31, 1996, commercial banks held 40 percent of farm business debt, and the Farm Credit System held 26 percent.
Net value-added and net farm income reached record levels in 1996, rising substantially from 1995. Net value-added for 1996 was $19.1 billion more than in 1995, up 25 percent, and $9.5 billion greater than its previous high in 1994. Net value-added represents the total value of the farm sector’s output of goods and services (less payments to other, nonfarm, sectors of the economy) and production agriculture’s addition to national output.
The $22.6-billion rise in final output (crop output, animal output, and services and forestry) far exceeded the $3.4 billion increase in out-of-pocket costs in 1996. The value of 1996 crop output soared $17 billion, reflecting rebounds in both acreage and yield for major crops, both of which had declined in 1995, following 1994's record harvest. The total value of livestock production in 1996 was $4.4 billion higher than the previous year, the first increase in 3 years. Substantial increases in the sales of hogs, poultry, and dairy products more than offset a $4- billion decline in cattle sales.
Compensation to hired workers was 6.1 percent more than in 1995 and interest expenses increased by 3.9 percent. The earnings of nonoperator landlords were up 19.3 percent in 1996.
Net farm income, which jumped $15.4 billion from 1995 to 1996, is that portion of net value-added earned by farm operators (defined as those individuals and entities who share in the risks of production). In fact, the major share of the 1996 increment to net value-added accrued to farm operators. Typically it is farm operators who benefit most from the increases and absorb most of the declines arising from short-term, unanticipated weather and market conditions. However, due to the rise in earnings of farm employees, lenders, and landlords, net farm income rose less in 1996 than the increase in overall net value-added.
Net cash income rose by $8.8 billion, a 17.1-percent increase from 1995 to 1996. Net cash income reflects the cash earnings generated by the farm business which are available for debt servicing, capital purchases, and distribution to farm households to cover family living expenses. Net cash income, unlike net farm income, does not include the value of home consumption, changes in inventories, capital replacement, or implicit rent and expenses related to the farm operator’s dwelling. These categories do not reflect cash transactions during the current year.
Farm operators have been surveyed through the annual Agricultural Resource Management Study (formerly the Farm Costs and Returns Survey) about the finances and production on their farms since 1985. Beginning in 1988 USDA collected additional information about the operators’ households. In 1996, the most recent year for which the survey data are available, about 98 percent of farms were covered in the household definition. Included are those run by individuals, legal partnerships, and family corporations. Nonfamily corporations, cooperatives, and institutional farms are not included in the household definition.
Like many other U.S. households, farm households receive income from a variety of sources, one of which is farming. The 1996 average household income for farm operators households was $50,360, which is on par with the average U.S. household. About 84 percent of the average farm operator’s household income comes from off-farm sources, and many operators spent most of their work efforts in occupations other than farming. Off-farm income includes earned income such as wages and salaries from an off-farm job and net income from an off-farm business. Off-farm income also includes unearned income, such as interest and dividends, and Social Security.
For the majority of farm operator households, off-farm income is critical. Most U.S. farms are small (less than $50,000 in gross sales) and are run by households that depend mainly on off-farm income. About 39 percent of operators with small farms reported a nonfarm major occupation in 1996, and another 27 percent were retired. Most operators of larger farms reported farming as their major occupation, and their households were more likely to depend on farm income. In 1996, slightly more than a quarter of farm households operated commercial-size farms with sales of more than $50,000. These households provided most of U.S. farm production. However, even in households with the largest farms (sales of at least $500,000), off- farm income averaged $34,950 per household.
Average household income and dependence on off-farm income also vary among types of farm households. For example, 6 percent reported negative household income for 1996. On average, these households lost $36,060 from farming during the year. About 28 percent had household income of $50,000 or more, with farm income averaging $41,509. Among occupational categories, households of operators who reported occupations other than farming or retired had the highest average household income, largely from off-farm sources. Data on operators’ age show that households associated with the oldest and youngest operators had the lowest average household income. Data on operators’ educational level show significant increases in average income with each higher educational level.
Many of the 50 States experienced a recovery in net farm income in 1996 from the substantial declines of the prior year. In 1995, net farm income was down substantially in most States and particularly in the Corn Belt, Northern Plains, and the Southern Plains regions. A decrease in the value of crop output, compared to 1994's record harvest, accounted for most of the lower income in the Corn Belt and Northern Plains, while higher production expenses appear to be more responsible for the income change in the Southern Plains Region. In 1996, net value- added from production in the agricultural sector rose by $2.1 billion in Iowa, the most of any State. This was an increase of 45 percent, but seven additional States had percentage increases of at least that much: Missouri (89%), Illinois (61%), South Dakota (60%), North Dakota (59%), Minnesota (59%), Indiana (46%), and Nebraska (45%). Nationally, cash receipts from sales of corn, soybeans, hogs, and milk were each up by more than $2 billion in 1996 and are among the leading commodities in these eight States, with the exception of North Dakota. Located in the country’s bread basket and geographically contiguous, the eight States accounted for 55 percent of the $15.6 billion increase in U.S. net farm income accruing to producers. Producers in North and South Dakota also benefitted from increased wheat sales.
California continues to lead the Nation in cash receipts and farm income by substantial amounts, reflecting both its substantial land mass and its commodity mix, which is heavily weighted towards commodities with high value of production per acre. California’s net farm income in 1996 rebounded to $5.6 billion, up from $4.6 billion in 1995. Iowa with $4.0 billion, representing a gain of $1.8 billion, earned the second largest net farm income in 1996. Two additional States earned more than $3 billion in net farm income in 1996--North Carolina ($3.4) and Nebraska ($3.1), and five more States exceeded $2 billion--Texas, Illinois, Minnesota, Georgia, and Arkansas. In contrast, in 1995, only four States topped the $2 billion mark-- California ($4.6), North Carolina ($2.7), Texas ($2.5), and Iowa ($2.2).
Florida, Kansas, and Washington round out the top dozen States in 1996 ranked by net farm income. These dozen States accounted for more than 60 percent of the Nation’s net farm income. Of these States, only Florida failed to achieve a higher net farm income in 1996 than in the previous year. Collectively, net farm income for the top 12 States in 1996 was $9.6 billion above 1995. Illinois and Washington entered the top 12 grouping in 1996, displacing Kentucky and Ohio which had been ninth and twelfth in the 1995 ranking. Missouri, Illinois, Indiana, and Minnesota more than doubled their net farm income in 1996 over that earned in the previous year. An extensive set of value-added\farm income tables for States dating from 1949 is available on the ERS World Wide Web site (www.ers.usda.gov).
The top 10 States in cash receipts for all commodities in 1996 were California, Texas, Iowa, Nebraska, Illinois, Minnesota, Kansas, North Carolina, Florida, Wisconsin. The share of total cash receipts derived from crop or livestock sales varied greatly among these 10 top-ranked States.
California led the Nation in crop sales with $17.1 billion, and was the top producing State for 8 of the sector’s top 25 commodities: dairy products, greenhouse and nursery products, eggs, hay, grapes, tomatoes, lettuce, and almonds. California vaulted from third to first place in egg sales with a 27-percent rise in a single year. Three-quarters of California’s farm sales were from crops; fruits and nuts 27 percent, vegetables 23 percent, and greenhouse and nursery 10 percent.
Florida’s pattern of cash receipts is similar to California’s, with vegetables, fruits and nuts, and greenhouse and nursery accounting for 69 percent of agricultural sales. By contrast, 60 percent of Texas’ cash receipts were from livestock, and two-thirds of that was cattle and calves. More than 8 percent of the Nation’s livestock sales value was attributed to Texas. Iowa’s cash receipts are mostly opposite those of Texas, as crops comprise 58 percent of the total and livestock 42 percent. Feed grains and oilseeds represented 56 percent of Iowa’s 1996 sales, while hogs accounted for 23 percent. Iowa leads the Nation in both corn and hog sales.
Cattle and calves remained the top ranked commodity in generation of cash receipts for 1996, even though their sales fell by $2.9 billion or 8.4 percent. In fact, the sales of cattle and calves have declined by $8.2 billion or 21 percent since 1993 due to lower prices. Texas led in cattle and calf receipts with $5.3 billion, down 1 billion dollars (15%) from the prior year. Nebraska ($4.1 billion) and Kansas ($4 billion) were the second and third leading producers of cattle. An extensive set of ranking tables is available on the ERS World Wide Web site (www.ers.usda.gov).
Government payments of $7.3 billion in 1995 and 1996 were the lowest they had been since 1982. Total payments in both years were only 8 percent below those of 1994 but 41 percent lower than the $13.4 billion in 1993. Direct government payments were expected to begin declining after 1996, but are now expected to begin declining in 1998. Payments in 1996 and later years were to have reflected production flexibility payments provided under the 1996 Farm Act, but unanticipated adjustments for deficiency payments owed to farmers in 1996 and repayments owed by farmers under the previous farm program are included in 1996 payments and the influence also extended into 1997. After 1997, the influence of the deficiency repayment adjustments should be concluded and the payment totals will begin to follow the declining levels of production flexibility contract payments specified in the 1996 Farm Act. The payment totals will be constrained by the funding set forth in the Federal Agriculture Improvement and Reform Act of 1996 (the 1996 Act) through the year 2002.
The 1996 Act fundamentally redesigned income support and supply management programs for producers of wheat, corn, grain sorghum, barley, oats, rice, and upland cotton. Government payments to producers who signed up for the program are now fixed and are scheduled to decline through 2002. Dairy policy was also changed as price support is to be phased out and milk marketing orders consolidated. The 1996 Act also altered the sugar and peanut programs. Farmers are freer to alter their crop production in response to relative price signals from the marketplace. Farm income is likely to become more variable under the Act in response to year-to-year changes in the supply and demand for commodities. Marketing alternatives to manage price and production risk are becoming more important for many farmers.
The number of farms decreased slightly to 2,063,910 in 1996. Almost three quarters of all U.S. farms have annual sales of less than $50,000, while approximately 1 percent of all farms have sales greater than $1 million. Farms with over $250,000 in sales account for less than 8 percent of all farms but dominate American agricultural output. These large farms sell over 65 percent of the Nation's livestock and over 66 percent of the crops. They have nearly 64 percent of the gross cash income compared with 59 percent of the cash expenses. In 1996 they accounted for more than 78 percent of the Nation's net cash income from farming. Approximately 42 percent of direct Government payments went to these farms.
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