The agriculture sector increasingly relies on the marketplace for its income. Government payments, which represented about 9 percent of gross cash income in 1999 and 2000, account for about 2 percent of gross cash income in the latter part of the projections. Both crop and livestock receipts are up in nominal terms, due to larger production and higher prices. Production expenses in the baseline increase at slightly less than the general inflation rate. Production expenses for energy-related inputs, such as fuels and fertilizer, rise in the initial years of the projections as prices increase for oil and natural gas.
Cash operating margins tighten early in the projections.
Cash expenses increase to 79-80 percent of gross cash income over the next few years before falling back to 76 percent later in the baseline period. Net farm income in 1999 and 2000 was maintained at levels near the average of the 1990's as higher government payments supplemented lower farm cash receipts during this period of generally low commodity prices. With no further emergency assistance assumed and government payments thus projected to decline, farm income is initially lower as gains in commodity prices and cash receipts in the sector do not match the reduction in government payments. In the longer run, the outlook for the sector improves as large global commodity supplies are reduced, agricultural demand and exports strengthen, and prices rise, leading to gains in farm income and greater stability in aggregate financial conditions. Farm financial indicators With reduced farm income and cash flow projected over the next few years, debt management will be crucial to the financial condition of the agricultural sector.