Survey: Farmers Expect Incomes to Fall in 2006

NASHVILLE, Tenn. – An overwhelming majority of U.S. farmers surveyed said they expect their income to fall in 2006, with nearly a quarter of them bracing for a sharp drop of 16 percent or more, according to a Reuters poll released on Tuesday.

Reuters surveyed 705 of the 6,200 farmers attending the American Farm Bureau Federation's annual meeting this week in Nashville, Tennessee. It found that 84 percent expect farm income to fall this year, with 27 percent expecting it to plunge 16 percent or more from 2005.

Fifty five percent said their income would drop between 6 percent and 15 percent.

The souring U.S. farm economy follows two years of record or near-record net farm income. But farmers' fuel and energy expenses soared 40 percent to $11.6 billion in 2005, just as bumper crops began depressing grain and soybean prices.

Both factors paint a gloomy picture for the farming sector in 2006.

Another worry is growing competition from China and South America, which has reduced the global market for U.S. farm exports and pushed the country's corn and soybean surpluses to the highest levels in nearly 15 years.

The straw poll did not attempt to weight responses by state, farm size or other criteria.

The Farm Bureau Federation is the nation's largest growers' group, representing producers of livestock, cotton, wheat, corn and soybeans.

EATING UP PROFITS

"I haven't seen input costs this high, certainly not for fertilizer or fuel costs, since I've been farming," said Eric Spates, a Maryland corn and soybean grower. "When our input costs in, say, fertilizer are up 60 percent, that can pretty much eat up our profitability."

The price of natural gas, used to make fertilizer, is up nearly 50 percent from a year ago. Even if energy prices fall later in the year, most farm input costs are incurred between now and the end of May, so many growers have little choice but to pay to plant and fertilize their crops.

Robert Young, Farm Bureau chief economist, estimated fertilizer prices in 2006 would top $16 billion, up from $13 billion a year ago. Fuel prices, which totaled $8.2 billion just two years ago, could soar to $15.7 billion in 2006.

Oil and gas prices may fall by summer, "but so what?" said Young. "That would be nice for 2007 but for 2006 you're kind of still between a rock and a hard place."

To offset high energy prices, farmers must cut other costs. The Reuters survey showed 31 percent of respondents would shift to less intensive tillage. Another 20 percent said they plan to switch to crops requiring fewer inputs, and 19 percent said they would reduce fertilizer use.

Don Wood, a Georgia cotton and peanut farmer, said he will plant less cotton this year and look for other ways to cut costs. He forecast a 20 percent drop in his net income in 2006 before cost-cutting measures.

"All these will have a little impact," said Wood. "Maybe we can slash it to 10 percent but it's more stress on us and more intense management to do it. And it may not even work."

The economic trouble threatening the farm sector comes as Congress begins crafting a new U.S. farm bill to replace the one that expires at the end of the 2007 growing season.

FARM BILL IN FAVOR

Of the farmers surveyed by Reuters, 61 percent said the next farm bill should not be changed significantly.

Many growers favor the current version of farm law because it raised support prices for cotton and most grains. It revived a system of automatic payments to growers when returns from sales and subsidies fall below targets set by law.

The government will pay an estimated $18 billion in crop subsidies alone this fiscal year, the highest in six years. As the Bush administration tightens its spending belt, there is wrangling among analysts on whether subsidies to corn, wheat, soybeans and other major crops should be cut and by how much.

The Reuters poll showed that 72 percent of those surveyed want the new farm bill to either keep subsidy payments at current levels or increase them.

"That's an area we know that we're going to have to address in the longer term in the context of trade negotiations and in ... the (federal) budget," said Farm Bureau Federation president Bob Stallman.

But some growers expressed concern that any move to cut farm subsidies would further squeeze a sector whipsawed by financial uncertainty tied to trade, weather, plant disease and other factors.

"Fuel prices are going up. Fertilizers are going up. Chemicals are going up," said Julie Michel, a Minnesota farmer with 4,000 acres of corn, soybeans and wheat. "If we got fair prices across the board we wouldn't need subsidies in the first place."