Looking at updated farm income forecasts

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This week, USDA updated its farm income forecasts for 2012. The new forecasts for net farm income and net cash farm income are lower than the ones released in August, but both measures are still near the record highs recorded in 2011. Net cash farm income for 2012 is now put at $132.8 billion, down from the $139.2 billion forecast in August.

Crop prices have weakened over the last three months, reducing cash receipts and the estimate of cash expenses was raised by about $4 billion. The new forecast puts net cash farm income below the record high reported for 2011 of $134.7 billion, but still nearly 60 percent above the 10-year average of $83.8 billion.

Even with the recent weakness in crop prices, crop cash receipts for 2012 are put at $216.6 billion, up $8.3 billion from the 2011 level. The biggest increases are for peanuts (up 54%), barley, oats and sorghum (up 31%), hay (up 20%), and soybeans (up 11.5%). Cash receipts declined from 2011 levels for rice, cotton and vegetables.

Total livestock cash receipts edged up about 2 percent compared to the 2011 level with higher receipts for cattle and poultry offset by declines for hogs and dairy. Total cash receipts are up $11 billion to $385.5 billion for 2012. Cash expenses rose by $22 billion from 2011 to 2012 with the biggest increase in feed costs. Feed costs rose by almost $10 billion year-over-year to $64.4 billion. These rising feed costs pushed margins below breakeven for most cattle feeders, hog producers and dairymen. The costs of feeder livestock also edged up a little in 2012 further reducing profits for most livestock producers.

Crop producers faced significantly higher seed costs in 2012. Seed costs rose by about 12% this year to just under $20 billion. Pesticide costs jumped by 9% and fertilizer costs were up 6.3%. There were also big increases in the costs of repair and maintenance (up 9.9%) and machine hire and custom work (up 10.3%). Net rents also rose by almost $2 billion from 2011 to 2012. Cash expenses have increased by a little more than 18% in just the last two years.

Other sources of revenue also increased in 2012. Direct government payments were up $500 million because the percentage of acres covered rose from 83.3 percent in 2011 to 85 percent in 2012. Crop insurance payments fall into the “Farm-related Income” category. This category also includes custom work, machine hire, recreational activities and other farm income sources. But the big increase this year is due primarily to bigger crop insurance payouts. This category increased from $26 billion in 2011 to nearly $35 billion in 2012 an increase of more than 33 percent. In total, farm revenue increased by $20.5 billion this year while cash expenses are up $22.4 billion.

In addition to the high net cash farm income data for 2012, farm equity also continues to rise. Farm equity at the end of 2012 is forecast at $2.27 trillion, up $144 billion from the 2011 level. Big gains in land values are the key factor driving up the value of total assets. The value of farm assets will increase by about $155 billion this year, while total farm debt increases by just over $11 billion. That puts the debt-to-asset ratio at 0.107, the lowest since 2007 and the third lowest in at least the last 50 years. The debt-to-asset ratio topped 0.22 in the 1980s when land values crashed.

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