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Tuesday, February 28, 2012

U.S. Farm Income

Randy Schnepf
Specialist in Agricultural Policy

According to USDA’s Economic Research Service (ERS), national net farm income—a key indicator of U.S. farm well-being—is forecast at $91.7 billion in 2012, down $6.5 billion (6.5%) from the record total of $98.1 billion achieved in 2011. Record revenues from crop markets (forecast up 0.7%, from 2011’s record level), coupled with continued strength in livestock markets (down 0.1% from 2011’s record), are expected to be offset a 4% ($12.5 billion) increase in input costs to account for the lower forecast for overall net returns.

The major drivers behind a second year of strong farm income projections are the outlook for near-record U.S. agricultural exports of $132 billion in 2012, following record exports in 2011 (projected at a record $136.3 billion), and continued strong crop prices driven in part by sustained demand from the U.S. corn ethanol industry. Market prices for major program crops for the 2011/12 marketing year have remained near record levels, and sustain a positive earnings outlook for most commodities, but especially for corn, cotton, and soybeans. Beef and broilers are expected to see record high prices in 2012 (up 9% and 7%, respectively), while egg and milk prices are projected to decline by over 8%.

Government farm payments, although projected up 4% in 2012 at $11 billion, are expected to remain relatively small (second lowest total since 1997) as high commodity prices shut off payments under the price-contingent marketing loan and counter-cyclical payment programs.

Farm production expenses are forecast up 4% to a record $334 billion in 2012, led by a surge in operating expenses and increasing outlays for crop insurance. Livestock producers face record costs for feed and near-record costs for replacement animals, which could diminish their net return prospects. Crop producers also are expected to confront record high costs for seed, fertilizer, and fuel.

Farm asset values—which reflect farm investors’ and lenders’ expectations about long-term profitability of farm-sector investments—are expected to rise nearly 6% in 2012 to a record $2,474 billion for a 4th consecutive year of gains. Farm land cash markets in early 2012 suggest that land values will continue to see gains related to strong crop prices in 2012. Farm debt has been nearly stagnant since 2008. As a result, the farm debt-to-asset ratio has declined steadily since 2008 and is expected to fall to the lowest level on record in 2012 at 10.3%.

These data suggest a strong financial position heading into 2012 for the agriculture sector as a whole relative to the rest of the U.S. economy. However, there is substantial regional variation. In general, the increase in expenses will affect livestock producers more harshly than crop producers. Cash grain farmers in the Corn Belt and Northern Plains are expected to experience a second year of record revenues. In contrast, livestock and poultry feeders are experiencing record high feed costs that have narrowed profit margins despite record high wholesale and retail prices for their end products. In addition, a severe drought in 2011 in the Southwest that extended into the Central Plains and the Southeast limited grazing opportunities and hay production for cattle ranchers in the affected regions and led to substantial herd liquidation. The lingering effects of the drought are expected to depress sales of many crops in 2012 through their negative impact on production. Eventual 2012 agricultural economic well-being will hinge greatly on spring crop planting and summer growing weather, as well as both domestic and international macroeconomic factors including economic growth and consumer demand.

Date of Report: February 15, 2012
Number of Pages: 29
Order Number: R40152
Price: $29.95

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