U.S. farm income will set a record in 2013, reflecting the anticipated rebuilding of crop reserves depleted by drought that will not be sold until future years, the U.S. Department of Agriculture said.
Net income will climb to $128.2 billion from a revised $112.8 billion last year and $117.9 billion in 2011, the USDA said today in its first farm-profit 2013 forecast. The total includes $16.6 billion for the value of crops not sold by Dec.
1. Excluding unsold crops, cash profit will fall from 2012.
Revenue to farmers for crops sold to companies such as Cargill Inc. or Archer-Daniels-Midland Co. will fall 1.5 percent to $216.3 billion, and livestock sales will jump 2.2 percent to $176.5 billion even as cattle herds fall to a 61-year low.
“You’re going to see production go up, but prices go down, and that will lead to less revenue on corn and soybeans,” said Chris Hurt, professor of agricultural economics at Purdue University in West Lafayette, Indiana. “There is a lot of optimism right now, and I don’t know that the optimism is justified given how low prices could go.”
Agricultural profits fell last year as the drought devastated crops and forced ranchers to cull herds.
Andrew Beck, chief financial officer of Agco Corp., maker of Massey Ferguson tractors, said in a conference call last week that farmer finances should be enough to “support healthy demand” for his company’s products.
Expenses will be $249.8 billion, up 5.7 percent from last year, according to the agency.
The decline in cash income is a response to the waning drought, as increased production drives prices lower, said Pat Westhoff, director of the Food and Agricultural Policy Research Institute at the University of Missouri.
“If you assume normal weather, you have to think that revenue levels for 2013 will be down from 2012,” when the drought pushed prices higher and farmers qualified for record insurance payments, Westhoff said. “How much that will affect individual producers will depend on their own individual circumstances.”
While the drought lingers over much of the Great Plains, rains have improved prospects further east, with Illinois, typically the second-biggest corn producer after Iowa, free of severe dryness, according to the U.S. Drought Monitor.
Hopes for favorable weather will encourage farmers to plant 96 million acres of corn, the most valuable crop, a decline of
0.9 percent from last year, the USDA said today in a separate report. Plantings of wheat, which requires less rainfall, may rise 3.2 percent to 57.5 million acres.
Even in areas where soil moisture has been replenished, the effects of the drought may linger in the minds of some farmers, said Bob Young, chief economist for the American Farm Bureau Federation in Washington.
“It affects people’s thinking, and there was so much corn planted last year you may see some acres go to other crops simply because of farmers’ rotations,” said Young. Other farmers will simply put 2012 behind them, he said. “Corn returns continue to look pretty good,” he said. “It’s all going to come down to spring rains. If we don’t have timely rains, we’ll be in trouble.”
Farm-related income, which includes government-backed crop insurance, will rise 18 percent to a record $31.1 billion, the USDA said.
With claims still to be processed, government-subsidized payments from companies including Ace Ltd. and Wells Fargo & Co. for 2012 crop losses have already surpassed $14.2 billion, exceeding the 2011 record of $10.84 billion, the USDA said today. Indemnities may reach $16 billion, then drop to $10.1 billion for this year’s crops, according to a congressional estimate.
Crop subsidies, excluding insurance assistance, will be $10.9 billion, little changed from last year, the USDA said.
Among farmer costs in 2012, feed, the biggest single component of farm spending, is projected to increase 6.3 percent to $67.7 billion. Fertilizers made by Potash Corp. of Saskatchewan Inc. and other companies will cost $26.5 billion this year, down 0.4 percent from last year, while seeds from Monsanto Co. and DuPont Co. are up 2.5 percent to $12.7 billion.
Agriculture is responsible for about 1.2 percent of U.S. gross domestic product, according to the department.
Today’s forecast will be revised by the USDA in August, when the department recalculates its estimates before the harvest of most major crops begins.