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Farm incomes highest in 40 years -- USDA

It's been 40 years since farm incomes were as strong as they'll likely wind up in 2013, according to data released by the USDA Economic Research Service (ERS) this week.

Net farm income is likely to hit $131 billion this year, up 15% from the 2012 total ($113.8 billion). Though net cash income was forecast 3.4% lower than a year ago at $129.7 billion, that's due mostly to when farmers have and will be selling their grain.

"Not all crops produced in 2013 will be sold by the end of the 2013 calendar year; we anticipate substantial increases in the annual quantity and value of crop inventories, particularly for corn," according to USDA-ERS ag economist Mitch Morehart. "As a result, crop cash receipts are expected to decline by nearly 3% in 2013."

Alongside higher overall crop value this year, livestock receipts are seen surging about 6% for 2013. Taken together, the overall farm income picture -- a revision from an estimate ERS took in August -- is even brighter; overall net farm income is almost 8% higher than the earlier estimate.

"Most of the upward revision in our expectations for 2013 farm income is the result of price gains in selected crops (soybeans, hay, fruits and nuts, other vegetables, and melons). An upward revision in our forecast for the value of crop inventory change reflects increased price expectations, as well as an upward revision in the forecast quantity of corn production," according to Morehart. "The forecast value of livestock production is revised upward as increases in red meats, dairy, and chicken eggs more than offset anticipated declines in poultry. Price expectations are revised substantially upward for cattle."


Eating into the projected net returns on the farm, though, are production expenses that Morehart says have risen 3% in 2013, continuing an 11-year trend (minus 2009). Though the percentage gain is lower than the last two years, the national total for farm expenses -- $352 billion -- is an inflation-adjusted record high.

"The smaller expected increase in 2013 is due to a slowdown in the rise of prices paid for farm inputs. The Production Items, Interest, Taxes, and Wage Rates (PITW) prices-paid index — an overall average of prices paid for farm inputs and services calculated by USDA’s National Agricultural Statistics Service (NASS) — is forecast to rise 2.4% during the year, compared to 6.0% in 2012," Morehart says.

Here's a rundown of what the ERS report shows for corn, soybeans, and wheat:

Corn: "The large increase in U.S. corn yields and production in 2013 is expected to result in a large increase in end-of-year corn inventory, more than offsetting the predicted decline in receipts. Hence, corn value of production -- which is the sum of corn cash receipts, home consumption, and value of annual inventory change -- is expected to rise in 2013," Morehart says. "Domestic use and exports of U.S. corn are expected to increase in the 2013 marketing year. Alcohol for fuel use is expected to recover in the 2013 marketing year from its 2012 decline. The price, receipts, and value of hay production are expected to rebound, benefiting from a sharp rise in yields, production, and quality."

Soybeans: "Soybean prices and receipts are expected to decline slightly, but increased yields and production in 2013 translate into forecast increases in both the value of inventory change and the value of soybean production. The USDA anticipates increased domestic use and exports during the 2013 soybean marketing year," Morehart says.

Wheat: "Wheat receipts and value of production are expected to decline in 2013. Both reflect expected reductions in acres harvested, production volume, price, and domestic use. A slight increase is expected in U.S. wheat exports," he says. "Rice receipts and value of production are expected to rise slightly, reflecting a strong anticipated price increase offsetting an expected decline in rice production. Demand for U.S. rice exports in the 2013 marketing year is expected to decline, reflecting reduced exports of U.S. milled rice."

Looking ahead, the ERS report shows that while expenses will continue to rise and eat into operating profits, the value of farm assets will continue to rise, supporting what Morehart says will likely be a largely healthy farm sector moving into 2014.

"Forecasts for expenses were reduced as large downward adjustments in purchases of fertilizer and feed more than offset increases in other purchased inputs and employee compensation," he says. "Increases in farm asset values are expected to continue to exceed increases in farm debt, leading to another new record high for farm equity. Farm financial risk indicators are expected to continue at historically low levels."

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