Record Net Farm Income Expected In 2011

Record Net Farm Income Expected In 2011

USDA is forecasting U.S. net farm income should reach a record $103.6 billion this year, a 31% jump over last year.

The latest report from USDA's Economic Research Service forecasts big increases in U.S. net farm income and net cash income for 2011. USDA chief economist Joe Glauber says that for the first time both are expected to exceed $100 billion in the same year. Both marks are records for U.S farm income, with net cash income projected up just over 24% to $114.8 billion.

"The net cash income number is a nominal record," notes Glauber. "It's the highest level, even adjusting for inflation, all the way back to 1974."

Glauber notes that net farm income is forecast to rise 31% from 2010 to $103.6 billion. Cash receipts are estimated to be around $370 billion. "That's up 18% over 2010 levels," he says. "The crop receipts are a total of about $207 billion, that's up 19.4% over last year, certainly lead by sales of corn, wheat and soybeans. Also livestock receipts are estimated around $164 billion, up almost 16%."

Expenses have risen, but receipts have increased more

It's no surprise yearly farm expenses are also expected to reach new heights; they are forecast to be 11.4% higher than in 2010. He notes it's the first time total expenses are expected to surpass the $300 billion mark.

"Feed costs are up about 20% and that goes hand in hand with corn, wheat and soybean prices," says Glauber. "Fuel and fertilizer prices are up almost 24%. So we've seen the increases in oil prices that translate into higher diesel prices, higher gasoline prices and also fertilizer prices."

Even so, Glauber says the balance sheet for 2011 looks good for most agriculture producers. While production expenses are up, he says receipts have increased more. Also the farm sector debt is down almost 2% from last year and the debt to asset ratio is forecast to match a historical low.

Farm incomes to reach a record, despite low crop yields

The latest USDA Farm Sector Income Forecast, released August 30, 2011, says high worldwide grain demand coupled with lower-than-expected yields means U.S. farmers can look forward to a record-high farm income total from the 2011 crop.

The USDA Economic Research Service projection that total U.S. farm income will reach $103.6 billion, if it does indeed reach that level, would be up 31% from last year's total. The previous farm income record was $84.7 billion in 2004. A couple of key points can be gleaned from this.

* These 2011 income levels are not just records, but records that are significantly higher than ever before.

"These latest USDA farm income forecasts are not just records, but records that are substantially higher than we've seen before," says Chad Hart, an Iowa State University Extension grain marketing economist.

Both crop and livestock revenues are up in 2011 for the U.S., but the income totals don't tell the whole story. Input costs are on the rise, as well. USDA estimates farmers have put 15% more into the cost of inputs for their 2011 crop. "So, we have crop revenues up 20% and livestock up 16%," he notes. "Profit margins have expanded in 2011."

Livestock receipt increases for 2011 are being led by a 27% increase in dairy and an 18% increase in beef cattle.

* Biggest drivers in crop revenue rise for 2011 are U.S. ethanol demand for corn, and exports of soybeans to China.

The biggest drivers in crop revenue increases for U.S. farmers this year have been corn demand generated by ethanol production and soybean exports to China. Corn receipts in 2011 should reach $62 billion nationally, up 39% from 2010. Soybean receipts will be up 17.5%, at a total of $39 billion.

Specific state-by-state projections weren't available in this report. On average for the U.S., low crop yields will be more than compensated for by record-high prices. Unfortunately, however, uncooperative weather and sharply reduced yields on some farms mean not all crop farmers will have record incomes. And, with high feed prices, some livestock producers also will be feeling the financial pinch that will continue into 2012.

* Outlook for livestock income in 2012 will be weaker, profit margins for corn and soybeans will also shrink.

The income outlook for the livestock sector in general for 2012 is going to be weaker because the expensive 2011 crop will furnish the feed supply for most of 2012.

"We see high feed costs, and right now at this point we're looking for milk and poultry prices to come down a bit, while beef and pork prices will stay fairly stable," says Purdue University ag economist Chris Hurt. "Revenues may be down somewhat on livestock in 2012, but costs, particularly feed, will be up. We think the animal profit margins will be very close to flat with no real profit potential across the livestock sector in 2012."

Grain farmers also will see profit margins shrink for their 2012 crops as grain prices drop slightly and input costs increase an estimated 20%. Even so, both Hart and Hurt say 2012 crops should still be profitable, just not quite as profitable as 2011.

"The 2011 U.S. farm profitability and incomes likely will hold as records for several years to come," adds Hurt. The full USDA report can be found online at http://www.ers.usda.gov/Briefing/FarmIncome/

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