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Monday, March 4, 2013

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 a record $128 billion in 2013, up 14% from last year, and $10 billion above 2011’s previous 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 8% in 2013 to a record $2,732 billion for a fifth 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 35% while farm debt has risen by only 15%. As a result, the farm debt-to-asset ratio has declined steadily since 2008 and is expected to fall to 10.2%, its lowest level since 1960.

The 2013 outlook for a third 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. A severe drought in 2012 destroyed or damaged 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—as feed costs reached record levels. The drought’s eventual effect on food prices at the retail level will continue to be felt in 2013. Yet, drought-induced large increases in the value of 2012’s crops, plus substantial crop insurance indemnity payments, are expected to partially offset higher production expenditures for both crop and livestock activities.

In general, a return to trend yields in 2013 (assuming normal weather) is expected to generate record-large harvests of major crops which, in turn, would likely benefit livestock producers in the second half of the year as crop prices are expected to decline from record-high levels. However, high feed costs could persist through at least the first half of the year. Cash grain farmers in the Corn Belt and Northern Plains are expected to experience a third year of nearrecord revenues as a return to trend yields would offset a substantial portion of the anticipated crop price decline. However, the expected increase in crop and total output in 2013 is also projected to lead to unusually large increases in marketing, storage, and transportation expenses and miscellaneous expenses.

Government farm payments, at about $11 billion, are expected to remain relatively small in 2013 (third-lowest total since 1997) as high commodity prices continue to shut off payments under the price-contingent marketing loan and counter-cyclical payment programs.

These data suggest a strong financial position heading into 2013 for the agricultural sector as a whole relative to the rest of the U.S. economy, but with substantial regional variation. The lingering effects of the drought are expected to spill over into 2013, 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: February 21, 2013
Number of Pages: 35
Order Number: R40152
Price: $29.95

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