UNL Ag Economist: Nebraska Crop Producers Face Most Profitable Year Ever

UNL Ag Economist: Nebraska Crop Producers Face Most Profitable Year Ever

September 19, 2008

This year is shaping up as a "bin-busting" year for Nebraska crop producers, as surging revenues are likely to result in a $1.5 billion increase in that sector's net farm income, said a University of Nebraska-Lincoln agricultural economist.

Bruce Johnson predicts 2008 will be the most profitable year ever for the state's crop producers.

"While it is still too early to call it official, the income potential associated with our major crops may be nothing short of bin-busting," Johnson wrote in the Sept. 10 Cornhusker Economics (139 KB)

The good news does not translate to Nebraska's livestock sector, which is expected to experience a $750 million reduction in net earnings compared to 2007, Johnson said. Combining the livestock loss with the crop gain, Johnson forecasts an overall $750 million increase in total net farm income for the state, a 21% hike.

The build-up of cash receipts over time for Nebraska's agricultural sector has been phenomenal in recent years, he said. Historically, total agricultural production output hovered near $10 billion a year from 1990 to 2002. More than 60% of those cash receipts were from livestock sales.

However, since 2003 the cash receipts from the crop and livestock sectors advanced significantly, with crop receipts reaching a forecasted $9 billion for 2008. Crop cash receipts for 2008 are nearly triple the amount they were at the beginning of the decade, and for the first time ever cash receipts from crops should exceed livestock receipts, Johnson said.

As receipts have increased, the importance of federal subsidies has declined, Johnson said. Subsidy payments to Nebraska producers exceeded $1.4 billion in 1999, 2000 and 2005. Current preliminary estimates for 2007 and the forecasted estimates for 2008 indicate those payments will be around $500 million — 35% of the previous highs.

"In short, market forces are now playing the major role in income conditions for Nebraska producers," Johnson said.

With higher cash receipts the past two years, the state's projected aggregate net farm income has advanced, Johnson said. Preliminary 2007 estimates place the annual net income near previous record levels, while the 2008 forecast places net farm income at $4.25 billion — 21% above the 2007 level and nearly 90% higher than the previous 10-year average.

Even as 2008 is a banner year for crop producers, it "may be an income-short year that many specialized livestock producers would probably like to forget," Johnson said. While revenues are expected to be up $500 million in 2008, the increase will be more than offset by higher feed grain costs, which have risen as much as $700 million, he said.

Those costs, as well as other inputs, have increased the total livestock sector costs by up to $1.25 billion over 2007 levels.

"So here the math turns south — the state's livestock sector looks to be falling behind in net income for 2008 by as much as $750 million," Johnson said.

Input costs for the crop sector also are up sharply, by nearly $1.3 billion, with fertilizer costs alone up $522 million from 2007. However, estimated crop revenues are expected to be up nearly $2.8 billion, resulting in the $1.5 billion net gain.

Cornhusker Economics is a weekly newsletter of the Department of Agricultural Economics that can be downloaded from the departmental Web site, http://www.agecon.unl.edu.

Lori McGinnis
IANR News Service