Large Gains in Crop Sales and Indemnities Push Farm
Income Measures to New Highs in 2012
Net farm income is forecast to be $122.2 billion in 2012,
up 3.7 percent from last year. Net cash income
, at $139.3 billion, is
forecast up 3.4 percent from 2011, while net value added is
expected to increase by $5.9 billion in 2012 to $172.6
billion. Reflecting the market impacts of widespread drought
and high temperatures during the growing season, large increases in
the value of this year's crop and crop insurance indemnity payments
have more than offset declining milk sales and rising production
expenditures. These income forecasts, if realized, represent
all-time record levels in all three measures of farm
income.
Highlights 2012
Extreme heat and dryness in the Plains and Corn Belt is
drastically cutting projected U.S. corn and soybean yields for the
2012 harvest. Both U.S. corn and soybean supplies for
marketing year 2012 are expected to be at 9-year lows. Fifty
percent of the corn crop is graded in very poor-to-poor condition
as of August 5, versus 16 percent at the same time in 2011.
The share of soybeans rated in poor-to-very-poor condition (39
percent) is the highest since the USDA series began. Sorghum
production is also suffering. Skyrocketing corn prices are
supporting U.S. 2012 wheat prices reflecting higher feed and
residual use. U.S. wheat production is expected to increase almost
13.5 percent in 2012 as wheat farmers recover from the 2011
drought.
Despite the severity of the 2012 drought, shortfalls in
marketing year production do not necessarily have a detrimental
impact on sector-wide farm income. Shortages raise the prices
farmers receive for crops sold in calendar-year 2012, and crop
insurance partially offsets the impact of lower yields. As a
result, in 2012:
- All three major measures of farm income are expected to
achieve all-time nominal record highs. Inflation-adjusted net
farm income is the second-highest since 1970.
- Crop receipts are leading the 2012 income increase, with
strong gains in corn, soybean, hay, and wheat sales reflecting
higher commodity prices. A large anticipated rise in other
farm income reflects large increases in crop insurance indemnity
payouts.
- A decline in dairy sales is forecast, reflecting
expectations of lower farm prices for milk.
- Government payments paid directly to producers are
expected to total $11.1 billion in 2012, a 6.3-percent increase
from $10.4 billion paid out in 2011.
See the official USDA estimates
and forecast tables.
Amounts in this article are in nominal dollars. Estimates and forecasts in
constant (2005=100) dollars are available 
.
U.S. Crop Sales
Forecast To Achieve New Heights in 2012
U.S. farmers are expected to sell 4 percent more wheat at
a higher annual price ($8/bushel) in 2012 as production recovers
from the 2011 drought and demand increases for wheat as a feed
substitute for corn. While the average 2012 U.S. rice price is
expected to exceed 2011 by almost 30 cents per cwt, a decline in
quantity sold of almost 18 percent will reduce rice
receipts.
Hit hard by the 2012 drought, U.S. corn production is
expected to decline, leading to drops in exports and alcohol for
fuel use in marketing year 2012. While the quantity of
corn for grain sold in 2012 is expected to decline almost 7.4
percent, a forecast rise of $1.31 per bushel should boost annual
receipts.
Scorching heat and a prolonged drought is expected to
result in the lowest soybean supply in 9 years. Soybean sales
are expected to experience a significant rise in 2012 as an
increase of almost $3 per bushel more than offsets an 8 percent
decline in the quantity of soybeans sold.
A forecast price decline of 10 cents per pound is expected
to reduce 2012 cotton lint receipts. However, predictions of
increased quantities sold at a substantially higher price will push
2012 cottonseed sales up almost 40 percent.
The overall price index for fruit and tree nut sales is
expected to rise over 1.7 percent in 2012, but will be more than
offset by a 3-percent decline in quantities sold. Declines in
annual quantities sold are forecast for pecans (17.1 percent),
grapefruit (10.8 percent), prunes and plums (13.1 percent), lemons
(9.8 percent), and pears (7.8 percent). Dry bean receipts are
forecast to benefit from a price rise of almost $8 per cwt in 2012,
whereas an increase in quantities of potatoes sold will more than
offset a forecast decline in annual price.
Agricultural Prices: Estimates and Forecasts
Estimated quarterly prices for 2010 and 2011 are implicit
prices based on USDA estimates of quarterly sales during the
calendar (January - December) year. Estimated quarterly
prices are calculated as the estimate of the value of sales over
the quarter divided by the estimate of quantity sold to the private
sector, adjusting for cash receipts received on CCC
transactions. ERS quantities sold are based on NASS quantities
produced or harvested minus quantities used on the farm for seed
and feed.
Quarterly price forecasts for calendar-year 2012 are
partially based on explicit prices developed by ERS analysts using
USDA forecast prices. The quarterly price forecasts are
multiplied by the quarterly forecasts of quantities sold in the
open market to obtain quarterly and annual forecasts of sales or
cash receipts for 2012. These quarterly forecasts of
open-market sales are added to a forecast of quarterly CCC cash
receipts for each commodity to arrive at the quarterly and annual
forecast of cash receipts for 2012 for each crop, which in turn
determine implicit quarterly prices.
Estimating Calendar-Year Cash Receipts With Crop
Marketing Year Data
Annual USDA income and value-added estimates, such as cash
receipts, are measured in calendar years (January 1 through
December 31). Crop marketing years are 12-month periods capturing
farm operations' economic activity from the beginning of a new
harvest through when the crop is typically sold. The U.S. has a
marketing year for each crop, but different marketing years can
exist for the same crop grown in different States. For example, the
corn-for-grain crop marketing year for the U.S., Iowa, and Illinois
is September 1 through August 31, whereas for Florida and Georgia
it is August 1 through July 31, and for certain other States it is
October 1 through September 30. Livestock and some crop marketing
years coincide with calendar years.
For crops that are marketed across two calendar years (say
2009 and 2010), ERS uses the share marketed in 2009 in its estimate
of 2009 cash receipts, while the remainder is used in the estimate
for cash receipts for 2010. For example, suppose 30 percent of
Illinois corn harvested in 2009 is sold in the open market from
September through December of 2009 with the remaining 70 percent
sold from January through August of 2010. Cash receipts from
open-market sales in 2009 would include the share of Illinois'
harvest that was sold in 2009. The share of the 2009 harvest sold
in 2010 would be added to the share of the 2010 harvest sold in
2010 to arrive at Illinois' 2010 cash receipts from open-market
sales of corn. To the amount received from open-market sales, ERS
adds cash received from "sales" to the CCC to obtain the
calendar-year estimate for cash receipts.
Small Increase in Sales Forecast for Most Livestock; Milk
Receipts Expected to Plummet in 2012
A large forecasted decline in milk price as dairy supplies
exceed dairy demand in 2012 mean milk receipts are expected to
decline significantly. While both domestic and export demand
in 2012 is anticipated to be strong, large milk and dairy product
production in addition to large early-year stocks of cheese and
non-fat dry milk are expected to depress the 2012 dairy
price. Receipts for both cattle and calves are forecast to
increase in 2012, reflecting significant price increases for
both. Exported quantities of U.S. beef and veal have been
hampered by a stronger dollar and are expected to decline in
2012. Hog receipts are forecast to decline as predicted
prices decline from 2011 levels Pork and broiler export
quantities in 2012 are expected to improve.
Rising poultry and egg receipts reflect higher prices for
broilers, turkeys, and eggs in 2012. Turkey exports are forecast to
increase over 5 percent in 2012 with a smaller rise (1.5 percent)
expected for broilers. Egg exports in the first half of 2012
were down 2.1 percent from the same period in 2011, but are
expected to benefit in the second half from egg production
shortfalls in Mexico and a number of EU countries.
Production Expenses in 2012 Post Another Large Increase
Total production expenses in 2012 are currently forecast
to rise $18.6 billion (6.0 percent); this follows a $25-billion
(8.9-percent) increase in 2011. Total expenses in 2012
continue a string of large year-to-year movements that have taken
place since 2002, and are expected to reach another record-high
level in nominal dollars. Since 2002, nominal total
production expenses have risen $137 billion (72 percent). In
inflation-adjusted dollars, 2012 production expenses will eclipse
the previous peak set in 1979.
Groups of expenses have grown in varying amounts and
percentages since 2002. Farm-origin expenses and manufactured
inputs have increased 116 percent, accounting for nearly 75 percent
of the change in total production expenses during the period.
Together, these 2 groups now constitute 50 percent of total
production expenses, up from 40 percent in 2002.
The biggest factor in the rise in expenses since 2002 has
been increases in input prices. The prices-paid index for
Production Items, Interest, Taxes, and Wage rates (PITW) calculated
by USDA's National Agricultural Statistics Service (NASS) has risen
82 percent since 2002. By comparison, the Producer Price
Index for Finished Goods rose 40 percent during this period.
In 2012, the PITW prices-paid index had risen 5.4 percent through
July.
Forecasting expenses in 2012 is complicated by the
widespread drought. Most crops were already planted before
the severity of the drought was established. So, a normal
volume of crop-related inputs had already been purchased and
applied. However, purchases in the latter part of the year
will likely be curtailed. The ERS short-run forecast model
currently shows total agricultural output falling 2.4
percent in 2012 as the result of a 4.3-percent decrease in crop
output coupled with a 0.6-percent increase in livestock
output.
Among livestock-related expenses, the price of feed is
increasing, affecting prices paid for animals, particularly
cattle. Rising feed costs have been the primary cause
of a 12 percent fall in the price of Oklahoma City feeder steers in
2012, through July. Following a $9.2-billion (20-percent)
jump in 2011, feed expenses are expected to rise another $7.2
billion (13 percent) in 2012. The forecast is a product of a
12.4-percent rise in the feed prices-paid index and the slight rise
in livestock output. The number of grain-consuming animal
units is expected to increase marginally, but net placements of
cattle on feed should be down 3.4 percent.
Livestock and poultry purchases in 2012 are forecast to be
$700 million (3 percent) above the 2011 estimate. However,
the final effect of the drought has yet to be realized in the
cattle market, which comprises 75 percent of livestock and poultry
purchases.
The major crop-related expenses are predicted to rise $5
billion (9 percent), much less than in 2011. The principal
reason for the slowdown is a smaller increase in fertilizer
expenses, as its prices-paid index is expected to rise only 3.5
percent this year, compared to a 30.2 percent jump in 2011.
Even so, expenses for fertilizer and seeds are each slated to rise
nearly $2 billion and pesticides another $1 billion. Total
U.S. planted acreage is up 3.3 percent and the acreage of corn and
soybeans, both heavy users of these inputs, are up slightly more
than that.
The slowdown in the rise of fuel and oil prices is as
striking as fertilizer price trends. Between 2003 and 2011,
the annual average prices-paid index for fuels and oils registered
8 double-digit percentage increases, rising 223 percent. In
2012, that index is projected to rise 2.5 percent, mainly as a
result of a 2-percent hike in Refiner Acquisition Cost (RAC).
This market is volatile, however, so it is difficult to pinpoint
where prices will go during the year.
Payments to Stakeholders Rise
Payments to stakeholders--landlords, hired labor, and
lenders--do not generally track movements in net farm income. The
year-to-year consistency in payments to stakeholders follows from
the fact that they do not share the risk of equity holders. In
2012, payments to stakeholders are forecast to rise $1.5 billion
(3.2 percent) in nominal dollars, a smaller
increase than for net farm income. Payments to stakeholders
are expected to constitute around 29 percent of net value added,
the same as in 2011.
Total labor expenses are forecast to fall $500 million
(1.8 percent) as a result of a small increase in wage rates and an
expected 2.4-percent decrease in total output. Employee
compensation for hired labor accounts for nearly all the projected
decrease. Output of the commodities that employ the most labor is
mixed. Vegetable and fruit/nut output is slated to fall less
than 1 percent, while greenhouse and nursery output is expected to
rise less than 1 percent. Milk production is forecast up nearly 2
percent.
Net rent to nonoperators in 2012 is forecast to be 15.3
percent higher than it was in 2011. Cash rent is forecast
up. Real estate values are predicted up 7.8 percent in 2012
and the amount of planted acreage increased. Share rent is forecast
up in line with the expected increase in crop values. Government
payments to landlords are also forecast to rise a small amount.
These factors alone would yield a 2012 net rent forecast 2.2
percent higher than in 2011. The final expense is up so much
because Federal Crop Insurance Corporation (FCIC) indemnities to
landlords nearly double.
Total interest expenses in 2012 are forecast to rise 1.0
percent as the result of a 1.1-percent decrease in real estate
interest expenses and an increase of 4.8 percent in nonreal estate
interest expenses. Debt and interest rates are discussed in
the Assets, Debt, and Wealth
section.
Government Payments Forecast at $11.1 Billion
Government
payments paid directly to
producers are expected to total $11.1 billion in 2012, a
6.3-percent increase over the 2011 program payments. Direct
payments under the Direct and Countercyclical Program (DCP) and the
Average Crop Revenue Election Program (ACRE) are forecast at $4.96
billion for 2012. This 5.4-percent increase in direct
payments in 2012 over 2011 is largely due to the fact that the
percentage of base acres on which direct payments are made
increased from 83.3 percent for the 2011 crop year to 85.0 percent
for the 2012 crop year.
Strong crop prices are expected to continue through the
rest of 2012, reducing all expected commodity program payments
based on price to $10 million.
The Milk Income Loss Contract Program (MILC) compensates
dairy producers when domestic milk prices fall below a specified
benchmark price. For 2012, dairy producers are expected to receive
$650 million in MILC payments. Primarily based on the high
prices of the feed components in the dairy feed ration, the
National Average Dairy Feed Ration Adjustment (NADFR) in 2012 has
raised the benchmark MILC program price and triggered payments to
dairy producers.
Tobacco farmers and quota holders are expected to receive
$651 million in Tobacco Transition Payment Program (TTP) in 2012.
Payments reported here include both CCC payments and lump-sum
payments. Begun in 2005, this program provides annual payments over
a 10-year period to eligible quota holders and producers of
tobacco.
Conservation programs include all conservation programs
operated by the Farm Service Agency and
the
Natural Resources Conservation Service that
provide direct payments to producers. Estimated conservation
payments of $3.7 billion in 2012 are largely unchanged from
2011.
Supplemental and Ad Hoc Disaster Assistance payments are
forecast to be $1.1 billion in 2012, a 17-percent decrease from
2011 levels. Most of the Supplemental Revenue Assistance
Payments (SURE) of $556 million expected to be paid out in 2012
cover crop-year 2010 losses. Noninsured Assistance Program
payments of $250 million are expected to be made to livestock and
specialty crop producers for which no commodity insurance program
is available. Under the 2008 Farm Act, the Livestock Forage
Program (LFP), Livestock Indemnity Program (LIP), Emergency Loss
Assistance Program (ELAP), and the Tree Assistance Program (TAP)
are expected to pay out $77 million in 2012.
Under the SURE program, the bulk of commodity payments for
the 2011 crop year will be made in calendar-year 2013. This
is primarily due to the fact that the crop year is defined by a
commodity's harvest cycle, such that a crop year often overlaps two
calendar years. SURE payments are based on the average
market-year price calculated after a crop year ends. Disaster
relief programs (SURE, LIP, LFP, ELAP, and TAP) under the soon to
expire 2008 Farm Act only covered losses incurred prior to October
1, 2011. Thus, drought-related commodity and livestock losses
for the 2012 crop year are not covered.
Farm Income Forecasts Grow More Refined Over 19
Months
The periodic farm income forecasts and estimates published
by ERS for a particular year (5 over a span of 19 months) can vary
markedly from one release to the next. For example, the first
forecast of 2012 income (in February 2012) has undergone
painstaking refinement as new information has become available.
Release dates for updated forecasts correspond with the
availability of seasonal data and annual survey results. For
example, the August update of annual crop values benefits from
preliminary output and yield numbers as reported by producers in
the field. Likewise, because the prior-year's (2011's) forecast is
converted to an estimate in August, production expenses are
extrapolated from these new estimates and several months of
current-year input prices in future updates. Additional refinements
in the August 2012 and the November 2012 releases incorporate
harvest, sales, and inventory data. The final forecast of 2012 farm
income is released in February 2013. Ultimately, an estimate of
2012 farm income will be published in August 2013.
Individual components of the farm income accounts adhere to
different timetables and are subject to varying degrees of
uncertainty. For instance, crop inventory adjustment is a residual
component of total supply (production and beginning-of-year stocks)
and use (domestic and exports). Farm household income is contingent
on many factors (amount of off-farm work hours and wage rates) that
transcend crop and livestock numbers. Government payments--which
are a function of prices, production, eligibility rules, and ad hoc
disaster legislation-are also hard to forecast with any certainty,
and that uncertainty compounds the margin of error that measures
like net cash income are subject to from first forecast to final
estimate.