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Thursday, December 27, 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 $114 billion in 2012, down 3.3% from last year’s record, but still the second-highest total on record.

In addition to near-record farm income, farm wealth is also at record levels. Farm asset values— which reflect farm investors’ and lenders’ expectations about long-term profitability of farmsector investments—are expected to rise nearly 7% in 2012 to a record $2,540 billion for a fourth consecutive year of gains. Farm land cash markets have continued to see gains related to strong crop prices in 2012. Since 2008, farm asset values are up 26% while farm debt has risen by only 10%. As a result, the farm debt-to-asset ratio has declined steadily since 2008 and is expected to fall to 10.5%, its second-lowest level since 1960.

The 2012 outlook for a second year of strong farm income occurs in spite of slow growth in the domestic economy and the most severe and extensive drought in at least 25 years. The ongoing drought is expected to destroy or damage a significant portion of the U.S. corn and soybean crops, with deleterious impacts on all U.S. livestock sectors—cattle, hogs, poultry, and dairy— and with the potential to affect food prices at the retail level. Yet, drought-induced large increases in the value of this year’s crops, plus substantial crop insurance indemnity payments, are expected to more than offset rising production expenditures for both crop and livestock activities and generate record farm income.

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

These data suggest a strong financial position in 2012 for the agricultural sector as a whole relative to the rest of the U.S. economy, but with 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 despite the drought. In contrast, livestock and poultry feeders are experiencing record high feed costs that have narrowed or eliminated profit margins despite record high wholesale and retail prices for their end products. In addition, the severe nationwide drought has 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 spill over into next year, when record-high market prices will likely motivate large feed grain and oilseed plantings. Eventual 2013 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: December 10, 2012
Number of Pages: 29
Order Number: R40152
Price: $29.95

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