After soaring in 2007 and again in 2008, farm income has plunged in 2009 with little improvement expected in the next few years. A 30% drop in 2009 farm income is projected by the US Agriculture Department. Except for recession in 2002, this will drop the constant dollar value of farm income back to the level of the early 1980s when the farm crisis was headline news. The relatively strong economies and construction markets in the plains states in the last few years were due largely to soaring farm income. But these states are at a high risk of lagging behind the rest of the country during the economy recovery in 2010-11. The plains states for about 1/8 of the US construction market.

Private farm economists expect slightly stronger farm income than forecast by the Agriculture Department. As always grain and livestock income depends on the weather. The collapse in farm income is mostly for grains and livestock and does not include truck farmers. So the negative impact will be limited to the plains states.

Grain prices are down 28% year to date compared to the 2008 average. Corn prices are now about half of what farmers got at the peak in June 2008. Livestock prices are down 10% year to date from the 2008 average. The Producer Price Index for all farm products year to date is 17% below the 2008 average. About 1/3 of the drop in prices is offset by lower input costs, mostly for fuel and fertilizer.

Farmers have not panicked yet with one bad year after two super years. But their bankers are getting very concerned and have turned cautious on land and equipment loans although not yet on operating loans. With no significant changes expected in the next six months in either energy or farm prices, the modest spending cutbacks to date will become larger. Farm equipment sales so far this year are only off marginally from the same period last year. And adjusted for price changes, farm chemical sales have also been steady. However, note that the energy department expects farm chemical sales to drop 2-3% in 2010.

The value of construction starts in the plains states is down 8% year to date compared to 19% drop for all fifty states. This is the lingering boost from two strong years of farm income growth. But this boost will fade quickly. Growth in construction activity will likely trail the growth pace in the rest of the country by next summer.