Production Costs Declined More Than Market Prices : Farmers Earned Record $52 Billion in ‘86, USDA Says

Farmers earned a record $52 billion in 1986, mostly because of declining expenses, according to an annual report released Monday by the Department of Agriculture.

USDA economists said a further easing of production costs may help send net cash income up again this year to $54 billion to $58 billion. Net cash income is the difference between cash receipts and cash expenses.

Record Corn, Rice Yields

One big reason for the decline in total farm expenses has been acreage cutbacks in major crops under the government’s commodity programs. Last year, the report said, farmers planted 328 million acres in major crops, a decline of 5.6 million acres from 1985.

“Corn and rice yields reached record-high levels, but wheat yields fell to their lowest level since 1980,” the report said. “Total crop production fell an average of 8%.”

The report, one of an annual series on the Economic Indicators of the Farm Sector, was prepared by the department’s Economic Research Service.

“Farmers paid less for feed, feeder livestock, fuels, motor supplies, fertilizer, chemicals, tractors, and building and fencing,” the report said.

“The costs of capital replacement (investment in buildings and machinery) also fell for most farmers,” the report said. “Most crop growers and some livestock producers, however, received lower market prices.”

The cost of feed, which is produced by other farmers, declined 9.1% last year, following a 14.5% decline in 1985.

Analysts said for cow-calf operations, feed accounted for 64% of total variable costs in 1986; for farrow-to-finish hogs, 79%, and for dairy, 63%.

“The drop in feed prices contributed heavily to lower livestock production costs,” the report said. “Because feed prices changed for grains and supplements, hog farmers benefited even more than cattle producers.”

Interests Rates Stable

Fuels and energy costs declined about 20%, particularly benefiting crop producers who depended on on-farm drying and irrigation and dairy operators.

“Interest rates stabilized at around 10%, and we expect them to remain steady in the immediate future,” the report said. “Actual interest expenses fell for all crop and livestock enterprises except rice.”

The report for 1986 included information collected in the USDA’s annual Farm Costs and Returns Survey, which involves interviews with about 25,000 farmers and ranchers each February and March. The information is used to compile national estimates.