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USDA expects net farm income will decline slightly in 2012

Net farm income is expected to total $114 billion in 2012, down 3.3 percent from 2011. (File photo)

WILLMAR — According to the U.S. Department of Agriculture’s latest quarterly economic forecast, net farm income is expected to total $114 billion in 2012, down 3.3 percent from 2011. Nevertheless, after adjusting for inflation, the latest net farm income forecast remains very high by historical standards.

By Wes Nelson

Farm Service Agency executive director

WILLMAR — According to the U.S. Department of Agriculture’s latest quarterly economic forecast, net farm income is expected to total $114 billion in 2012, down 3.3 percent from 2011. Nevertheless, after adjusting for inflation, the latest net farm income forecast remains very high by historical standards.

Despite gains in almost all sources of farm income, large increases in farm expenditures, especially for purchases of feed and seed, have more than wiped out the gains in farm income because of higher commodity prices.

All major sources of farm income are expected to rise in 2012, with the largest gains expected for farm-related income from both federal and private insurance indemnity payments. There will also be a modest increase in government payments.

The expected gains in cash receipts for crops and livestock come mostly from expected price increases, with oil crops and feed crops the two leading commodities in terms of production value.

Increases in farm asset values are expected to continue to exceed increases in farm debt, leading to another new record high in terms of farm equity. In addition, all farm financial risk indicators remain at near historic low levels.

Corn and soybean receipts increase in 2012

Despite a projected decline in the quantity of corn sold in 2012, receipts for corn are still expected to increase from last year because of nearly a $1-per-bushel higher projected price for 2012.

Total feed, seed and industrial use of corn during the 2012 marketing year is expected to decline by almost 9 percent from last year, with use for ethanol production expected to decline over 10 percent.

Likewise, USDA is forecasting a decline in the amount of soybeans that will be sold in 2012. However, an expected price increase of $2 per bushel will result in an overall increase in soybean receipts.

Soybean use is also expected to decline during the 2012 marketing year, reflecting anticipated declines in soybean exports and soybean crush.

Hog and milk receipts decline slightly in 2012

The total value of livestock production is projected to rise in 2012, as gains are predicted in all livestock categories except hogs and milk.

Receipts for cattle and calves are predicted to increase in 2012, reflecting large anticipated price increases for cattle and veal. However, a slight decline in hog receipts reflects a forecasted decline in the average annual hog price.

Cash receipts from milk are also expected to decline, despite USDA’s projection of more milk cows and higher average production per cow in 2012. Despite recent gains, the average annual price for milk is expected to decline from the 2011 average price.

In terms of poultry, turkey receipts are expected to benefit from higher prices in 2012, while receipts for chicken eggs are also forecast to rise, reflecting a forecasted increase in the number of eggs sold and at a higher average annual price.

Total production expenses up 7.6 percent in 2012

Total production expenses are forecast to increase by 7.6 percent in 2012, up $23.5 billion from last year. This follows a $25.3 billion or 8.9 percent increase in 2011.

Total expenses in 2012 will extend the continued period of large annual increases since 2002, reaching another record high in nominal dollars.

Since 2002, total production expenses, in nominal dollars, have increased by $143 billion or 74.5 percent. In terms of inflation-adjusted dollars, 2012 production expenses will exceed the previous peak reached in 1979.

The biggest factor in the rise in expenses since 2002 has been higher input prices. According to USDA’s National Agricultural Statistics Service, the price-paid indexes for production items, interest, taxes and wage rates have risen 85 percent since 2002. By comparison, the producer price index for finished goods has gone up 39 percent since 2002.

In regard to livestock-related expenses, following a $9.2 billion or 20 percent jump in 2011, feed expenses are expected to increase another $9.7 billion or 18 percent in 2012.

Meanwhile, major crop-related expenses are expected to increase by $4.8 billion or 8.7 percent in 2012, significantly less than in 2011. The principal reason for the slowdown is a smaller increase in fertilizer expenses, as the fertilizer price-paid index is expected to rise only 2.5 percent this year, compared to a 30.2 percent increase in 2011.

Seed expenses are expected to show an increase of $2.1 billion or 11.9 percent in 2012, a larger increase than in 2011. Seed prices are expected to rise by 7.8 percent this year, while planted acreage was up 3.4 percent.

Unlike in previous years, fuel and oil expenses are expected to rise by $575 million in 2012, an increase of 3.7 percent. This year’s relatively modest increase is largely because the price-paid index for fuel and oil is projected to be nearly the same as in 2011.

Between 2003 and 2011, the annual average price-paid index for fuels and oils has registered 8 double-digit percentage increases, rising 223 percent, while expenses rose by $9 billion or 137 percent.

Government payments up 4 percent in 2012

Government payments paid directly to producers are expected to total $10.9 billion in 2012, a 4 percent increase over 2011.

Direct payments under the Direct and Counter-cyclical Program and the Average Crop Revenue Election Program are projected to total $4.98 billion for 2012. This year’s 5.7 percent increase in direct payments is largely because the percentage of base acres on which direct payments are issued was increased from 83.3 percent in 2011, to 85 percent in 2012.

Conservation program payments, including all conservation programs administered by USDA’s Farm Service Agency and Natural Resources Conservation Service, are projected to total $3.7 billion in 2012, largely unchanged from 2011.

Wes Nelson is executive director of the USDA Farm Service Agency in Kandiyohi County.

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