Over time, farms thereby become fewer in number but are larger and, in most cases, more efficient, with strengthened ties to nonfarm businesses that supply inputs that are essential to improved technologies. The new technologies seem destined to integrate farming operations still more tightly into our complex modern economy. Farm cost containment depends not only on technical efficiency but also on the prices of inputs, which farmers do not control. Fortunately, however, inflation is not a problem with which farmers have had to contend of late. This past year, in fact, farmers have benefited from declining input prices that have partly relieved the pressures imposed by declines in the prices of their output.
Prices are lower for gasoline, diesel fuel, fertilizers, and farm chemicals.
Prices paid in February for all production inputs, including those purchased from other farmers, were about 3 percent below the level of a year earlier. The weakening of farm markets, while pressuring farm income and wealth, has not had effects as dramatic as the declines in market prices might seem to have implied. Partly because of increased government payments to farmers this past year, but also because of efficiency gains and real cost reductions that have been implemented over the past several years, net farm income and farm cash flow from operations are holding up considerably better than they otherwise would have. Indeed, an earlier string of prosperous years fostered a strengthening of farm balance sheets, and, despite the softening of land prices in some regions since the middle part of last year, aggregate farm debt remains quite low relative to farm assets. However, the range of financial circumstances across individual farming operations is considerable, and although producers in general appear to have remained profitable, some producers, plagued by higher costs or adverse weather, are having to make financial adjustments.