While drought continues to threaten the U.S. agricultural economy in 2012, another significant setback has been added to the growing list of negative impacts to farm income for 2012.

USDA’s National Agricultural Statistics Service released their 2011 Farm Production Expenditures Summary Aug. 3 that indicated elevated production costs for the previous year rose more than10 percent, a spiraling trend that economists say continues into the current year as drought conditions threaten to chip away at farm income across the industry.

Farm production expenditures in the United States are estimated at $318.7 billion for 2011, up from $289.1 billion in 2010. The 2011 total expenditures rose 10.2 percent compared with 2010 total expenditures. All expenditure items except interest and labor increased from the previous year.

Leading the list of higher production costs was the cost of diesel. Total fuel expense was $15.3 billion. Diesel, the largest sub-component, was $10.1 billion, accounting for 65.9 percent. Diesel expenditures were up 23.7 percent from the previous year. Gasoline was $2.8 billion, up 9.4 percent. LP gas was $1.6 billion, up 8.8 percent. Other fuel was $820.0 million, up 13.9 percent.

Overall, the four largest expenditures at the national level totaled $147.1 billion and accounted for 46.1 percent of total expenditures in 2011. They were: feed, 17.1 percent; farm services, 11.6 percent; livestock, poultry and related expenses, 9.0 percent; and labor, 8.4 percent.

David Anderson, livestock economist for Texas A&M University’s Department of Agricultural Economics, says higher input costs, especially for the livestock and poultry segments, are at least in part the result of lingering drought conditions.

“We certainly have seen a spike in feed costs that are directly related to the drought. But other input costs — fertilizer for example — may be related more to a bumper corn crop year in 2011. The more acres of crop means more demand for fertilizer, so prices rose as a result,” Anderson says.

But on the bright side, once drought conditions fade and forage production returns to near normal levels, producers should get some relief.

“Call me terribly optimistic, but I think once pasture and range recovery takes place, then we will begin to see expansion in livestock production again and elevated input costs related to drought conditions will slowly get back to normal — or so we hope,” he adds.

In addition, he says while consumer demand for beef may suffer if and when beef prices rise next year, once more normal weather returns and forage production is no longer regulated by shortages, consumer demand should return to normal as well.

Ag can adapt

“Agricultural producers can adapt to current drought conditions to survive. While some producers may cull herds and opt to grow forage crops as a means to get through tough times, eventually we should see a healthy rebuilding of cattle herds and a return to more normal conditions,” he said.

According to the USDA Summary, in 2011 the United States total farm expenditure average per farm was $146,653 compared with $131,821 in 2010, an increase of 11.3 percent. On average, U.S. farm operations spent $25,129 on feed, $17,075 on farm services, $13,163 on livestock, poultry and related expenses, and $12,334 on labor.

For 2010, U.S. farms spent an average of $20,705 on feed, $16,281 on farm services, $11,128 on livestock, poultry and related expenses, and $12,450 on Labor.

Overall, and fueled by the drought, livestock and poultry producers shared the brunt of increased input costs in 2011. The top three average expenses per farm with the largest dollar increase were: feed, up $4,424 or 21.4 percent; livestock, poultry and related expenses, up $2,035, or 18.3 percent; and fertilizer, lime and soil conditioners, up $1,975, or 20.6 percent.

By region, the Midwest contributed the most to United States total expenditures with expenses of $98.7 billion (31.0 percent), up from $87.7 billion in 2010.

The other regions ranked by total expenditures were: Plains at $73.8 billion (23.2 percent), West at $68.9 billion (21.6 percent), Atlantic at $39.1 billion (12.3 percent), and South at $38.2 billion (12.0 percent).

The sum of total expenditures for the 15 estimate states was $205.8 billion in 2011 (64.6 percent of the United States total expenditures) and $188.1 billion in 2010 (65.1 percent). California contributed most to the 2011 United States total expenditures, with expenses of $31.2 billion, (9.8 percent).

California expenditures were up 3.2 percent from the 2010 estimate of $30.2 billion. Iowa, the next leading state, had $24.2 billion in expenses, (7.6 percent).

Other states with more than $15 billion in total expenditures were Texas with $22.7 billion, Nebraska with $17.3 billion, Illinois with $17.0 billion, and Minnesota with $15.5 billion.

Anderson says input costs and consumer demand for beef, for example, will always be affected by weather. But when the rains finally return and herds expand, livestock production and farming in general will see the return of better profits and fewer losses associated with the drought.

To view the complete USDA Farm Production Expenditures Summary, visit http://usda01.library.cornell.edu/usda/current/FarmProdEx/FarmProdEx-08-02-2012.txt.