USDA updated the farm income data and forecast the last week of August, and the new data show that income in 2011 was much higher than previously expected and that income in 2012 will be even higher.

New data for 2011 show net cash farm income hit $134.7 billion in 2011, far above the February forecast of $108.7 billion. The improvement in the income figure for 2011 came from all sides, with higher cash receipts, lower expenses and more money from crop insurance because of the drought in the Southern Plains last year. The previous record higher for net cash farm income was just under $100 billion in 2010.

Net cash income is forecast to increase to nearly $140 billion in 2012. Crop cash receipts will be high due to the big price gains over the last few months. The strong prices will almost certainly continue through the rest of this year and into 2013. Crop cash receipts in 2012 rise by $13.7 billion, due mostly to higher prices for corn and soybeans. With the severe and widespread drought this year, crop insurance payments will increase significantly again. The combination boosts gross cash farm income by $22.7 billion from 2011 to 2012.

But farm expenses will also be up significantly in 2012. By far the biggest increase is in feed costs, which rise by $7.2 billion, according to the USDA forecast. This is about 40 percent of the total increase in cash expenses for this year. Livestock cash receipts do not increase at all from 2011 to 2012, but feed costs surge by $7.2 billion. This is a clear formula for financial stress for the livestock sector of the industry.

The crop sector overall will have a good year in 2012, but the income won’t be evenly distributed. Producers in some areas will not be able to capitalize on the high prices because they have little to sell. Farmers in other areas may see yields only modestly below trend, but be able to sell their production for very good prices. But the record high net cash farm income may be another problem getting the new farm bill passed. With net cash farm income forecast at a record high, some members of Congress may try to force even bigger cuts to farm programs.

USDA does not extend forecasts out to 2013, but net cash farm income will probably stay pretty high next year. The strong crop prices should continue through the winter and into spring. Prices could weaken next summer if the 2013 crops get off to a good start, but stocks will remain tight unless next year’s crops are big. With no real cushion, especially for corn and soybeans, market participants will remain nervous about supplies until big crops are assured. Crop insurance payments will probably decline in 2013, but some of the payments for the 2012 crop losses will probably be delayed until early 2013. Net cash farm income probably won’t repeat the 2012 record high next year, but will almost certainly be above levels for any year prior to 2011.