Oregon net farm income reverses decline

Oregon net farm income shows moderate rise in 2010
— Nursery sales are still down, slowing net farm income growth
Farmers & ranchers begin to bounce back from a bad 2009
By Oregon Department of Agriculture

After a dismal 2009, the bottom line for Oregon’s farmers and ranchers last year showed modest improvement. However, it will take a much larger gain before the state’s net farm income is restored to its lofty pre-recession numbers.

“Overall, agriculture did a little better in 2010,” says Brent Searle, analyst with the Oregon Department of Agriculture. “Oregon net farm income is up about eight percent. But it’s a very slow dig out of a precipitous fall in 2009.”

A newly released economic snapshot of Oregon agriculture shows net farm income at just under $458 million in 2010. That’s an improvement from the $422 million recorded the previous year, which was a 41 percent drop from 2008. The latest numbers begin to reverse the downward slide of net farm income in Oregon that started following 2004’s record high of $1.3 billion.

“It’s good to see things begin to turn around,” says Searle. “But to put it in perspective, net farm income in Oregon is only about a third of what it was at its highest point just seven years ago.”

Net farm income is the amount retained by agricultural producers after paying all business-related expenses. It is considered an important indicator of the agricultural economy’s overall health. Think of it as the farmer’s paycheck. Out of that paycheck, growers make payments on land purchases, family living expenses, and family health insurance. Statistics provided by the U.S. Department of Agriculture’s Economic Research Service (ERS) show net farm income is a cyclical phenomenon.

Net farm income bottomed out in 1983 at $283 million, then peaked in 1992 at $681 million and in 1997 at $672 million. Times were tough once again in 2000 ($407 million) and 2001 ($433 million) before the number more than doubled in 2003, pushing over the one billion dollar mark for the first time. By 2007, net farm income in Oregon began to drop back down once again, as farm expenses took a bigger bite out of a healthy production value.

Why the improvement in 2010? Net farm income is essentially a see-saw with production value- which reflects the prices paid to growers for what they produce- on one side, expenses on the other. The value of production was essentially flat last year, even though some commodities enjoyed strong prices. However, the expense side of the equation was down, leading to the overall higher net farm income.

The value of Oregon crop production in 2010 fell to just over $2.7 billion- a decrease of about 5 percent, while the value of Oregon livestock production was more than $1.1 billion- an increase of about 20 percent. With more crop production than livestock production in Oregon, the drop in crop value outpaced the gains in livestock value, leading to a 3.5 percent overall decrease in value of production.

“Most of that is attributable to a decrease in the vegetable sector last year combined with continued struggles for nursery products and grass seed- two of Oregon’s largest agricultural sectors,” says Searle. “On the plus side, we saw a 12 percent increase in the value of wheat, an improvement in tree fruit production value, and a comeback in dairy and beef prices.”

Higher feed prices have led to herd liquidation in many cases, which actually caused the price paid for beef and dairy cattle to rise. As inventories remain tight, the price will stay up.

The expense side of the balance sheet, which had steadily gone up in recent years until 2009, went down again last year in several categories. Overall, Oregon farmers are cutting costs where they can.

“Generally, we see a reduction in what farmers are buying, not necessarily the cost of things,” says Searle. “They appear to be using less fertilizers and finding different, cost effective ways of doing things. Feed costs have been higher, but producers are adjusting. Also, when you sell off animals, you spend less on feed.”

Expenditures for repair and maintenance was down 15 percent, leading to speculation that farmers are trying to get by as best they can without having to pay to fix or maintain equipment and other capital items. Motor vehicle registration and licensing fee expenditures were down. Although not a major expense, the numbers show farmers are trying to save money by registering fewer vehicles.

Last year, there was a near 48 percent increase in direct government payments, mostly conservation programs that paid farmers to leave environmentally sensitive land out of production.

Labor continues to be the greatest cost incurred by agricultural producers. But even the category of employee compensation was down slightly last year.

“Wages or employee compensation continues to be significant, even if the overall number has dropped slightly,” says Searle. “That category is close to $1.1 billion annually. Compared to the net farm income of $458 million, you can see farmers are bringing home a paycheck that is less than half of what they pay in wages.”

The 2010 net farm income figures for Oregon’s neighbors show much more sizable gains. Washington grew a whopping 138 percent, Idaho increased 55 percent, and California rose 28 percent in net farm income compared to 2009 numbers. The national average increased 28 percent in 2010, after decreasing in 2009.

It will be late summer of 2012 before this year’s balance sheet is finalized. But with more than half of 2011 already completed, the early forecast portends a continued upswing in net farm income.

“I would expect a slight increase in net farm income for 2011- maybe 8 to 10 percent,” says Searle. “That won’t get us anywhere near to the point we were prior to 2007, but maybe we can cross the half billion dollar line once again. That’s still less than half of where we were during the good times. It’s a slow climb out of the recession for agriculture, just as it is for the rest of our economy. Farmers have taken a 50 percent cut in pay, or more, compared to just a few years ago. On average, they are living lean.”

For more information, contact Brent Searle at (503) 986-4558.

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