Income on U.S. farms is expected to climb this year to its highest level in nearly four decades, the U.S. Department of Agriculture (USDA) said, despite the severe drought that has afflicted much of the nation's farm belt.
The USDA on Tuesday forecast net farm income will rise 3.7 percent this year to $122.2 billion, the highest level since 1973 on an inflation-adjusted basis.
The increase comes as the U.S. faces a widespread drought that by some measures is the worst since the 1950s, with hot dry, conditions stretching across the Midwest and Great Plains. Federal forecasters earlier this month sharply cut their estimates for the fall harvest, expecting corn growers to have their lowest-yielding crop since 1995.
The expected rise in income is fueled by a combination of surging prices for corn and other crops -- a result of expected declines in the supply -- and by the widespread use of government-backed crop insurance, which pays farmers for crops damaged by drought. But those factors aren't benefiting all farmers. The USDA forecast shows livestock and poultry producers are struggling with rising feed costs without the same price rise, while dairy farms face both higher costs and a decline in milk prices.
The dry weather is severely cutting into the size of crops for farmers from Ohio to Colorado. Still, the shrinking harvest has been counteracted by prices for corn and soybeans that have hit record levels, not accounting for inflation. Those prices are driving a forecast 6.7 percent increase in crop revenues from a year ago.
The USDA also expects a rise of $8.4 billion, or 39 percent, in what is known as other farm income, driven overwhelmingly by increased farm-insurance payouts. The forecast doesn't include an estimate for crop insurance payments alone.
A majority of corn and soybean farmers carry crop insurance, which has become the predominate federal safety net for growers. Still, the effects of the drought will vary from farm to farm depending on the level of insurance coverage and when farmers locked in prices for their crops.
The complete report is available at www.ers.usda.gov/topics/farm-economy/farm-sector-income-finances/2012-farm-sector-income-forecast.aspx.
Reprinted in part from the Wall Street Journal