USDA Farm Income Forecast

USDA’s Net Farm Income (NFI) forecast is an oft-cited number that many in the policy arena will use. It can be found in the media as well. The statistic is first reported in February with two more updates during the year. A final number is released in February the following year. USDA just released a NFI update. Let’s look at how good the estimates really are.

Three Illinois Ag Economists published an analysis of the accuracy of the USDA NFI estimate. The initial February estimate, 1975-2015, tends to under-estimate realized NFI by 8.7%. Just looking at the economist’s chart does not appear to give any indication why or under what conditions might cause USDA to under estimate NFI. The August revision is better at estimating net farm income, only 3.7% under-estimation. Simply counting the occurrence of under-estimation shows that 80% of the time USDA’s August estimate is below the final. USDA revises its NFI estimate in November but is off by 4.4%.

So what is the take away with this simple analysis? The February NFI estimate can off by a significant amount to the downside and has over-estimated NFI 9 of the last 40 years. The August estimate isn’t too far off since most of the growing season is past, planted acres are known and price information is better understood. There is still some production risk, but not much. So even though USDA is currently forecasting a rise in NFI, $11.2 billion or 12.6% year over year (YOY), there is a good probability it will go higher. On the negative side, USDA is projecting median and average farm income to be negative. If we go a little deeper into the USDA data, the negative income is most likely a result of residential farmers rather than farms as a principal occupation. Residential farms are projected to average -$634, Intermediate farms $6218 and Commercial farms $254,220. Definitions of the farm types are below. In 2017 it will take about 500 acres of irrigated corn, or 730 acres of soybeans, or about 1625 fat hogs or about 235 fed cattle to meet the $350,000 gross sales.

NFI

Source: Kuethe, Hubbs, Sanders, Farmdoc Daily, (7):156.

The definitions of the farm types are:

  • Residence farms: Farms with less than $350,000 in gross cash farm income and where the principal operator is either retired or has a primary occupation other than farming.
  • Intermediate farms: Farms with less than $350,000 in gross cash farm income and a principal operator whose primary occupation is farming.
  • Commercial farms: Farms with $350,000 or more gross cash farm income and nonfamily farms.

Sources:

Kuethe, T., T. Hubbs, and D. Sanders. “Interpreting USDA’s Net Farm Income Forecast.” farmdoc daily (7):156, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, August 25, 2017.

USDA. “Farm Household Income and Characteristics”, https://www.ers.usda.gov/data-products/farm-household-income-and-characteristics/farm-household-income-and-characteristics/#Farm%20Household%20Income%20Forecast, accessed 31 August, 2017.

 

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What is Better Financially for College Grads, Rural or Urban Living

Two articles came across my desk last week that made me think about where college grads might choose to live and work. There are several factors that make up that decision and we will look at the financial one.The first article was from USDA discussing which location, rural or urban, workers are paid higher wages and the other from Cornell discusses farm worker living costs and wages. So where is it better financially for young people to work?

I bring up finances because some times people forget that aspect of the decision to take a job. One person I worked with learned that lesson the hard way. He had a job and owned a house in LaCrosse WI which is on the Mississippi River. He was offered and accepted a job in his same field in Chicago with a good pay raise. But he forgot to check into living costs in Chicago first. He quickly found out that housing costs quickly ate up all and more of his housing cost living in Chicago and that he could not afford the same size and kind of house in Chicago as LaCrosse. He wound up worse off moving to the big city. Grout and Ifft found something similar. Grout and Ifft looked at several of the 48 states comparing average farm worker wage to cost of living. Crop worker wages rose in nearly all of the states studied from $1-2 per hour from 2012 to 2016. In California, wages rose by about $2 per hour but was below the rural cost of living all of 2012-2016. Washington state had the opposite situation in place where average wage was as much as about $4 per hour above the rural living cost in 2012. In Florida and Texas living costs and wages for farm workers were nearly equal for the same time period. For these states, crop workers would be better off financially moving to Washington state. In the analysis, other states that paid more than cost of living included Idaho, Utah, Wisconsin and Michigan. But the Grout and Ifft analysis only looked at farm workers and not ag professionals.

The USDA analysis showed 2015 median earnings for those without a high school diploma rural or urban employees earn nearly the same amount. Urban high school diploma holders earned $2088 more than rural workers and urban bachelor’s degree holders earned $10,534 more than rural workers. Urban graduate degree holders earned $18,150 more than rural counterparts.

Depending on where one lives in an urban area they might be better or worse off financially than rural people. One web site, Sperlings Best Places (http://www.bestplaces.net/) allows one to compare cost of living and salaries from one city to another. Using median bachelor’s degree salaries from the USDA study, $41030, comparing McCook to Lincoln, NE a person would need to earn $2955 more in Lincoln for the same living costs. Doing the same for Denver is much worse. A salary would have to be $19,729 more to have the same living standards in Denver. The biggest difference in both cases is the cost of housing. Transportation, food and health care costs are a little higher in McCook than Denver but housing is almost 3X higher in Denver.

Of course there are certain advantages to living in more urban areas, restaurants, museums, concerts skiing, mountains, but McCook is only 5 hours away from all of that.And there are advantages to living in McCook, a lot less traffic, family, free concerts, easy access to hunting areas, better schools often as wells as less crime. Those offered a job in an urban area should fully consider the costs and benefits of that job. If the urban job is chosen, negotiate for a salary high enough that it pays for the higher costs of living in urban locations.

Sources:

Mare, Alexander, Urban Areas Offer higher Earnings for Workers With More Education, https://www.ers.usda.gov/amber-waves/2017/july/urban-areas-offer-higher-earnings-for-workers-with-more-education/ July 2017, accessed 7 August 2017.

Grout, T. and J. Ifft. “Higher Wages Don’t Always Mean a Higher Standard of Living: Rural Cost-of-Living and Farmworker Wages.” farmdoc daily (7):136, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, July 27, 2017.

Sperlings Best Places, Cost of Living, http://www.bestplaces.net/cost-of-living/, Accessed 7 Aug, 2017.