2013 net farm income up but your bank account will be less
All of the newspaper and television headlines will scream that net farm income for 2013 will be up 14 percent compared to last year. And many of those readers and viewers will remember prior headlines that indicated farmers were raking in cash from the USDA’s crop insurance program at levels higher than they would have received in a normal production year. Unfortunately, agriculture needs Paul Harvey to tell, “The rest of the story.”
USDA’s Economics Research Service (ERS) just released its financial projections for 2013, based on trend yields and estimated supply and demand for farm commodities.
The forecast is for net farm income (NFI) to be $128.2 billion, which is 14 percent higher than in 2012. What will either not be included in the news story—or buried—will be the ERS projection for net cash income, (NCI) which is different.
Net Cash Income
NCI is forecast to be down by 9 percent and that is the amount of cash in your bank account, and does not include the unsold inventory at the end of the year. NCI is forecast to be down, nationally and in your account, due to higher production expenses and less commodities that are actually sold this year, but carried over to 2014 due to low prices. That is not a sexy economic statistic, so no one will want to talk about NCI.
One of the big issues is the $19.2 billion increase in production expenses, which will be up to $353 billion, and the highest on record. Production expenses have increased 79 percent in the past decade. That includes a 106 percent increase in manufactured inputs as well as those produced on the farm, such as livestock feed. Other overhead expenses have increased 60 percent in the past decade. Among those expense items:
- Major livestock expenses are projected to rise by 5 percent, primarily for feed.
- Expenses for purchased livestock will slow down, primarily cause by contraction in the cattle industry.
- While a 13.5 percent increase in project in crop production, expenses are expected to rise $656 mil., mostly from seed and pesticide. Those combined with fertilizer, increased $11.3 bil. the past two years. The lower cost results from fewer planted acres expected in 2013.
- More farmers will be taking crop insurance and even with lower premium costs, the increased volume is pushing up total expenses.
- Other expense increases include an 11 percent increase in labor costs, a 12 percent increase in cash rent and share rent payments. Total interest payments are expected to rise 22 percent for operating loans, but decrease 9 percent for land loans.
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