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Estimated 2012 Net Farm Income Second-Highest Since 1970

Estimated 2012 Net Farm Income Second-Highest Since 1970

Report reveals an expected 3.7% increase in net farm income and a 3.4% increase in net cash income.

Rising commodity prices and increasing indemnity payments have offset declining sales and higher input costs, according to the latest Farm Income Report released Tuesday by the USDA Economic Research Service.

Drought has been largely blamed for shifting market trends, and the ERS reports expected commodity supplies to reach record lows. However, the ERS also says that lower yields and poor crop condition may not necessarily hurt farm income, and inflation adjusted net farm income is forecast to be the second-highest since 1970.

Crop Receipts Leading Income Booster

Despite a tough summer, the USDA ERS estimates a rise in farm income.

Drought's lingering effects have pushed prices higher for many commodities. The ERS report explains, however, that lower yields don't equate to lower overall receipts.

Possibly the hardest-hit of all the commodities is corn. Because production is expected to decline, drops in exports and corn for fuel use will likely appear in marketing year 2012, ERS says.

"While the quantity of corn for grain sold in 2012 is expected to decline almost 7.4%, a forecast rise of $1.31 per bushel should boost annual receipts," the report says.

Demand for wheat as a substitute for corn has pushed prices higher for the commodity, and the ERS says farmers are expected to sell 4% more wheat at an annual price of $8 a bushel.

Soybean supplies are also expected to dip to record lows, but offsetting prospective income lost from shrinking yields is a $3 per bushel increase for soybean prices.

Crop subsidies are also expected to rise 6.3% over 2011 payments.  ERS estimates total government payments will reach $11.1 billion in 2012.  

Poultry, Beef Producers May See Better Sales, Dairy and Pork Producers May Not

While livestock producers may enjoy price increases, dairy producers will likely experience price declines. Attributed to large stocks of cheese and non-fat dry milk, a significant dip in milk prices is further exacerbated by increasing dairy production. Hogs, too, will likely see lower receipts.

Cattle and poultry, on the other hand, should see better prices. Cattle producers should expect to benefit from "significant price increases," the ERS reports. Poultry producers can expect resurgence of egg, turkey and broiler exports.

Despite Steady Income Expectations, Inputs Will Rise

The ERS says production expenses will rise significantly in 2012, posting a 6% increase, yet smaller than the 8.9% increase in 2011. Farm-origin and manufactured inputs now account for 50% of total production expenses, a 10% increase from 2002. The ERS reports that the drought complicated production inputs.

"Most crops were already planted before the severity of the drought was established.  So, normal volume of crop-related inputs had already been purchased and applied," the report says. "However, purchases in the latter part of the year will likely be curtailed."

While crop expenses will likely rise 9%, the increase is still much less than the 2011 increase.

Expenses for livestock producers will be affected by increasing feed costs. The ERS expects feed costs to rise another 13% in 2012 alone.

Payments for labor or land owners and lenders will likely increase as well, though not as much as overall inputs. The ERS forecasts a 3.2% increase in those payments.

The next Farm Income Report update will be released in November.

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