U.S. farm income is expected to drop sharply in 2012 from last year’s record high as production costs rise by more than $10 billion for the second year in a row and crop receipts are limited by drought, USDA said recently in its first income forecast for this year.
Net farm income is forecast at $91.7 billion in 2012, down $6.3 billion or 6.5% from the 2011 forecast of $98.1 billion, USDA’s Economic Research Service (ERS) says.
The ERS estimates net cash farm income, a measure of solvency, at $96.3 billion, down 11.5% from 2011, when it topped $100 billion for the first time, but notes that forecast is still $15.9 billion above the 10-year average of $80.3 billion.
Net farm income reflects income from production in the current year, whether or not sold within the calendar year; net cash income reflects only the cash transactions occurring within the calendar year.
Net value added is expected to decrease by almost $4.2 billion in 2012 to $145.1 billion, ERS says. The declines would be the smallest since 2000 for all three measures of farm income, which can vary widely from year to year.
Crop receipts are expected to rise slightly in 2012, as increases in sales of corn, most other feed grains and peanuts offsetting declines in wheat, hay, vegetables/melons and fruits/tree nuts sales. Sales of many crops are expected to be down due to the negative impact of drought in the U.S. on 2011 production volume.
U.S. livestock sales are expected to decrease marginally in 2012 due to lower production levels. Cattle receipts are forecast to edge higher on higher fed cattle prices and strong export demand from Asian markets. However, dairy receipts are expected to decline, primarily due to lower forecast milk prices. Broiler chicken receipts are expected to increase despite lower production, while hog and turkey sales are projected to be largely unchanged in 2012.
Production costs are forecast to rise by 3.9%, or $12.5 billion, this year to a record $333.8 billion after rising by 12% in 2011. As in 2011, 2012 production costs will set both nominal and inflation-adjusted records, ERS says.
ERS forecasts that every expense other than livestock/poultry purchases, fertilizer and net rent to non-operators will increase in 2012. Four expense categories are seen increasing by more than $1 billion this year:
Some expenses that rose significantly in 2011 will rise more slowly or even decrease slightly in 2012. Among them are livestock and poultry purchases, seeds, fertilizer and fuels/oils.
Crop, conservation and other government payments to farmers were estimated by ERS at $11 billion this year, up slightly from $10.6 billion last year.
The debt-to-asset ratio for the farm sector will decline to 10.3% this year, from 10.5% percent last year, ERS says, and the debt-to-equity ratio also will decline. "These declines indicated that the farm sector's overall solvency position is strong," it says.
Editor’s note: Richard Brock, Corn & Soybean Digest's marketing editor, is president of Brock Associates, a farm market advisory firm, and publisher of The Brock Report.