Crop farmers see income rise
One of the worst droughts in history is not quelling farm income this year. The combination of high grain prices and crop insurance indemnity payments will actually result in record income levels, according to the latest forecast by USDA’s Economic Research Service.
Net farm income is forecast to be up 3.7% from 2011 to $122.2 billion and net cash income up 3.4% to $139.3 billion, while net value added is expected to increase by $5.9 billion to $172.6 billion. These income forecasts, if realized, would represent all-time records in all three measures of farm income. This is not to say that all producers or all sectors are sharing in the bounty. Crop farmers without federal crop insurance who are hard-hit by the drought will obviously see a financial setback, and some livestock sectors, most notably dairy, are having a rough year, with milk receipts expected to decline significantly.
Receipts and Costs. Still, industrywide, producers will end up having their strongest year ever in nominal terms, with inflation-adjusted net farm income the second-highest since 1970. USDA says that despite the severity of the 2012 drought, shortfalls in marketing year production do not necessarily have a detrimental impact on sectorwide farm income, for two key reasons: Shortages raise the prices farmers receive for crops sold in calendar year 2012, and crop insurance partially offsets the impact of lower yields.
For instance, while the quantity of corn sold for grain in 2012 is expected to decline by almost 7.4%, a forecast rise of $1.31 per bushel should boost annual receipts, USDA says. Soybean sales are expected to experience a significant rise in 2012 as an increase of almost $3 per bushel more than offsets an 8% decline in the quantity of soybeans sold. Wheat producers are expected to have the best of both worlds. They are expected to sell 4% more wheat at a higher annual price of $8 per bushel in 2012 as production recovers from the 2011 drought and demand for wheat as a feed substitute for corn increases.
On the horizon for cotton farmers, a price decline of 10¢ per pound is expected to reduce 2012 cotton lint receipts. However, predictions of increased quantities sold at a substantially higher price will push 2012 cottonseed sales up by almost 40%.
Production costs are forecast to increase 6% this year to a record high, following an 8.9% increase in 2011. Since 2002, nominal total production expenses have risen by 72%. In inflation-adjusted dollars, 2012 production expenses will eclipse the previous peak set in 1979.
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Market Snapshot, 10:00 am CT (VIP) -- October 3, 2012