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Higher prices erase gains to US Farm income

The US Department of Agriculture USDA said Tuesday that net farm income in the US would fall 3.3% in Y 2012, to $114-B from 2011’s record high net income of $116-B. Net cash income is down 1.4% Y-Y, to $132.8-B.

The agency says: Despite gains in almost all sources of farm income, large increases in farm expenditures, especially for purchased feed, have more than wiped out those price-led gains to farm income.

The largest part of the gain in farm income will come from federal and private insurance indemnity payments. Those payments are mostly related to losses in the 2010 crop year. Crop losses for the 2012 drought are not covered by federal insurance because Congress failed to pass a new farm bill. That may change once Congress turns its attention to something besides the fiscal cliff.

Higher prices for crops actually produced also contributed to farm income this year. Corn is expected to average about $1 bu more than in Y 2011, even though demand is down by 9%.

Soybean production is down as well, but prices are about $2 bu more than last year. And in a bit of good news for consumers, the USDA notes that vegetable prices are lower in 2012.

Beef and Veal prices are expected to be higher in Y 2012, while Milk prices are lower due to increases both in the number of dairy cows and in the amount of Milk each cow produces.

On the expenses side of the ledger, total production expenses are forecast to rise 7.6% in Y 2012 to $23.5-B following an 8.9% jump in 2011 to $25.3-B.

Here’s the bad news on costs: Total expenses in Y 2012 fall into a string of large Y-Y movements that have taken place since Y2002, and would reach another record-high level in nominal dollars. Since Y 2002, nominal total production expenses have risen $143-B 74.5%. In inflation-adjusted dollars, Y 2012 production expenses will eclipse the previous peak reached in Y 1979.

For an individual farm household, Y 2012 median income is forecast to rise to $57,645 in Y 2012, up 1% from $57,050 in 2011. The USDA notes that most small farm operators rely heavily on off-farm income, which is expected to rise 3.4% in Y 2012.

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