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Economists detail factors that prompted downward revision to income outlook.
U.S. net cash income is forecast at $132.8 billion for 2012, down 1.4 percent from 2011 and 6.7 percent below USDA's last forecast in August, according to the Economic Research Service (ERS). Net farm income for 2012 is forecast at $114 billion for 2012, down 3.3 percent from 2011. Link.
Following is an explanation of the shifts that were made in the forecast released today and the prior outlook issued in August:
The forecast of 2012 net farm income declined 6.7 percent between August and November as new data became available. In particular, the November net farm income forecast reflects changes between the August and November World Agricultural Supply and Demand Estimates (WASDE) and the August and November ERS market outlooks for various crops and livestock groups. In addition, the November forecast incorporates corrections in the value of the net change in crop inventories, which was inadvertently overstated by $3.3 billion in August. While this overstated the August forecast of 2012 net farm income by an equal amount, net cash income was not affected as it does not reflect inventory change, gross imputed rent, capital consumption, and other noncash items included in net farm income.
Our November forecast of the value of crop production declined 3.2 percent from the August forecast, the forecast value of livestock production rose 2.1 percent, and projected direct government payments to farm operations declined 2 percent.
The expected value of production declined for most major crop categories between August and November, especially for feed crops. For example, since August, USDA has reduced its forecast of the weighted, calendar-year price for corn from $7.14 per bushel to $6.77 per bushel, with the decline to occur in the latter half of 2012. Expectations for 2012 corn production declined by about 0.5 percent since August, reflecting a 1.1 bushels/acre drop in expected yield. The largest dollar change in expected 2012 livestock cash receipts since August is for dairy. USDA analysts have revised their expectations of the price of milk upward since August, more than offsetting their lowered expectations for milk production.
Forecast feed expenses for 2012 have risen since August, despite the declining prices for feed grains, as NASS' feed prices-paid index, published in Agricultural Prices, has increased 11.6 percent since the August forecast.
Every other component of the feed index (complete feeds, which have the heaviest weight in the index; hay; concentrates; and supplements) has risen. Soymeal prices have also gone up significantly. Expected 2012 operating expenses have risen since August, principally because of the 3.6-percent rise in NASS' Production items, Interest, Taxes, and Wage rates (PITW) prices-paid index. Projected labor expenses have risen since August due to a 2.3-percent increase in the Wage rates prices-paid index.
Not every expense forecast has risen since August. The 2012 forecasts of fertilizer and fuels/oil have decreased since August. Prices for these inputs have either declined or risen more slowly than anticipated. The downward revision of livestock and poultry purchases has occurred because the number of cattle on feed has shrunk and the price of feeder hogs has fallen.
The November forecast for direct government payments is down from August due to a $190-million reduction in expected MILC II payments to producers because of higher than expected milk prices and lower than expected feed prices.