Chart 1. 



Net Farm Income 



Billions of Dollars 

 40 



30 



20 



10 



Net Farm Income 



Billions of Dollars 

 40 



30 



1970 



■73 



Net Farm Income 

 "1967 Dollars" 



76 



\ 



20 



10 



79 



■82 

 (Forecast) 



dollars. Moreover, the cost of carrying debt declined 

 as the real rate of interest (before taxes) fell to near 

 zero and occasionally below zero during the decade 

 of the 1970s 



Concurrently, the value of farm land rose at rates in 

 excess of inflation, in response both to inflation and to 

 periods of favorable farm income. Many farmers pur- 

 chased land with debt capital, counting on inflation to 

 build an equity cushion in the property. Indeed, the 

 rapidly rising land values permitted farmers to use 

 such unrealized capital gains for refinancing operating 

 debt — thus masking the impact of deteriorating farm 

 income during the mid-1970s and the early 1980s 



With the onset of concerted efforts to bring inflation 

 under control, the prices of farm land are no longer 

 appreciating more rapidly than inflation. In 1981, farm 

 land prices declined 1 percent nationally according to 

 the U.S. Department of Agriculture Tenth Federal 

 Reserve District data suggest greater declines in that 

 region of the country (Table 1). Thus, farmers' ability 

 to refinance debt by using land equity is being 

 reduced. Additionally, the cost of carrying debt has 

 increased dramatically with both nominal and real 

 interest rates having reached record levels. 



Export Market Growth 



US farmers and agnbusmessmen engaged in a 

 sustained program of capital investment during the 

 1970s in order to take advantage of expected export 

 market growth Agricultural producers in other coun- 

 tries did the same But, a combination of factors has 

 slowed export market growth in the early 1980s. 

 Slower economic growth in developed and developing 

 countries of the world, higher value of the US dollar 

 in exchange markets, concerns over the credit worthi- 

 ness of Eastern European countries, and deterioration 

 of detente with the U.S.S.R have all tended to reduce 

 US market opportunities Greater competition from 

 other exporting countries has cut into US markets, as 

 well. Thus, it now appears that for at least the first 

 half of this decade US agriculture may have excess 

 production capacity. 



Energy Pricing 



US agriculture is in transition from low cost energy 

 to relatively high cost energy. While the U.S. adjust- 

 ment to world oil prices is complete, natural gas 

 pnces will escalate substantially by the mid-1980s. 



60 



