U.S. Farm Income in 2012 Forecast at Record Marks Despite Drought

August 28, 2012 08:15 AM

Via a special arrangement with Informa Economics, Inc.

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Net farm income, net cash farm income and net value-added farm income all seen at record marks.

Net cash income for 2012 is forecast at $139.3 billion, up 3.4% from 2011, according to USDA's Economic Research Service (ERS). Net farm income is forecast to be $122.2 billion in 2012, up 3.7% from last year while net value added is expected to increase by $5.9 billion in 2012 to $172.6 billion. Link

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"Reflecting the market impacts of widespread drought and high temperatures during the growing season, large increases in the value of this year's crop and crop insurance indemnity payments have more than offset declining milk sales and rising production expenditures," ERS noted. "These income forecasts, if realized, represent all-time record levels in all three measures of farm income."

As for the drought, ERS observed that "Extreme heat and dryness in the Plains and Corn Belt is drastically cutting projected U.S. corn and soybean yields for the 2012 harvest. Both U.S. corn and soybean supplies for marketing year 2012 are expected to be at 9-year lows. Fifty percent of the corn crop is graded in very poor-to-poor condition as of August 5, versus 16% at the same time in 2011. The share of soybeans rated in poor-to-very-poor condition (39%) is the highest since the USDA series began. Sorghum production is also suffering. Skyrocketing corn prices are supporting U.S. 2012 wheat prices reflecting higher feed and residual use. U.S. wheat production is expected to increase almost 13.5% in 2012 as wheat farmers recover from the 2011 drought."

However, ERS pointed out, "Despite the severity of the 2012 drought, shortfalls in marketing year production do not necessarily have a detrimental impact on sector-wide farm income. Shortages raise the prices farmers receive for crops sold in calendar-year 2012, and crop insurance partially offsets the impact of lower yields. As a result, in 2012:

  • All three major measures of farm income are expected to achieve all-time nominal record highs. Inflation-adjusted net farm income is the second-highest since 1970.
  • Crop receipts are leading the 2012 income increase, with strong gains in corn, soybean, hay, and wheat sales reflecting higher commodity prices. A large anticipated rise in other farm income reflects large increases in crop insurance indemnity payouts.
  • A decline in dairy sales is forecast, reflecting expectations of lower farm prices for milk.
  • Government payments paid directly to producers are expected to total $11.1 billion in 2012, a 6.3-percent increase from $10.4 billion paid out in 2011.


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There is considerable regional disparity in the outlook for 2012 farm business net cash income, with two regions expected to experience losses of 10% to 11% from 2011 and three others expected to experience significant gains (see map), according to ERS. "With higher-than-average crop farm income and sustained cattle farm income, net cash farm income is forecast to increase by over one-third in the Northern Great Plains. The Prairie Gateway and Mississippi Portal are expected to benefit from increased program crop farm income. The largest drops in net cash farm income are in the Northern Crescent and the Fruitful Rim, where many farm businesses specialize in dairy production and specialty crop production, respectively."

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As for other farm business highlights, ERS noted the following:

Although all program crop farm businesses are forecast to have higher average net cash income in 2012 than 2011, some crop specializations will experience higher gains than others. Insurance indemnities are forecast to offset the impacts of declining yields associated with the drought. With increased wheat prices and the winter wheat harvest largely completed before the onset of drought, average net cash income for wheat farm business is forecast up nearly 33% over 2011. Average net cash income is forecast up for corn farms due to expanded acreage and high prices. A few States less affected by the drought even experienced an increase in corn yields over 2011. Soybean farm businesses largely follow the same pattern as corn farm businesses. Although cotton receipts are projected down in 2012, cotton and rice farm businesses are benefiting from strong grain and oilseed performance.

Cash expenses are forecast to increase 5% to 7% across program crop farm businesses in 2012. Rent expenses, which make up 10% to 20% of cash expenses, are expected to increase 5% to 7%. Seed; fertilizer, lime, and chemicals; and fuel together make up around half of all cash expenses for farm business specializing in program crops, and these expenses are forecast up 11%, 8% and 6%, respectively.

Specialty crop farm businesses (fruits, vegetables, and nursery/greenhouse) are expected to experience a decline in average net cash income of about 3% in 2012. With lower prices on average, crop receipts are expected to decrease by less than 1%. Total cash expenses are forecast to increase by 3% for specialty crop farm businesses, while labor expenses, which are a large share of specialty crop farm businesses' expenses, are forecast to decline 2%. Other field crop farm businesses (sugar crops, hay, silage, trees, and woody crops) are expected to experience a 19-percent increase in net cash income, on average, in 2012, with crop receipts forecast up about 6%.

With declining prices for some livestock products and increasing feed prices, livestock farm business net cash income is expected to vary considerably in 2012 across different specializations. Feed costs are predicted to rise over 13%, and make up 51% of expenses for dairy, 19% for beef cattle, 41% for hogs, and 34% for poultry farm businesses. After substantial gains in average net cash income in 2010 and 2011, dairy farm businesses are forecast to experience a 52-percent decline in 2012. Declining prices are expected to contribute to an almost 11-percent decline in dairy receipts. Average net cash income for beef cattle farm businesses is expected to increase over 9% in 2012. Despite herd liquidations and increased culling due to the drought, overall tight supply is expected to contribute to slightly higher prices than in 2011. Increased expenses and flat receipts are causing projected net cash income for hog farm businesses to decline almost 6% in 2012. With increasing prices and a corresponding 6-percent expected increase in receipts, the broiler sector is better positioned than hog and dairy producers to withstand higher expenses. Average net cash income for poultry and egg farm businesses is forecast up 1.3% from 2011.


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