Dairy, expenses to push 2012 U.S. ag income lower

USDA released its latest Farm Sector Income Forecast – a look at the national agriculture income/cost balance sheet – indicating 2012 U.S. net farm income will decline almost $4 billion from its all-time high in 2011. Net cash income is expected to decline almost $2 billion.

The value of agricultural sector production is expected to increase, with gains anticipated for crops, livestock and especially revenues from services and forestry sales. Larger gains are predicted for oil crops and other farm income.

However, those solid gains in the projected annual value of U.S. agricultural production will be more than offset by increases in purchased inputs and payments to stakeholders. In particular, U.S. livestock feed expenses are forecast to increase almost $10 billion in 2012. Among livestock-related expenses, USDA said feed costs will rise 18%, on top of a 20% increase in 2011.

Gross cash receipts for milk are expected to decline from 2011, despite USDA expectations of more milk cows producing more milk per cow in 2012. The average annual price of milk, despite recent gains, is expected to remain lower than in 2011.

Gross milk receipts totaled about $39.3 billion in 2011, with 195.3 billion lbs. of milk marketed, and an average all-milk price of $20.14/cwt. As of mid-November, USDA forecast 2012 milk marketings of 198.7 billion lbs., at an average all-milk price of $18.55/cwt., yielding a total of about $36.9 billion.

For 2012, dairy producers are expected to receive $460 million in Milk Income Loss Contract (MILC) program payments.  Primarily based on the high prices of the feed components in the dairy feed ration, the National Average Dairy Feed Ration Adjustment in 2012 has raised the benchmark MILC program price and triggered payments to dairy producers.

Overall, farm equity is projected to achieve a new record high in 2012, as expected growth in farm assets exceeds the expected increase in farm debt. Debt repayment capacity utilization (DRCU) – a measure of farm exposure to financial risk – is forecast to tick upward while remaining at a near-historic low level.

To see the full report, visit www.ers.usda.gov/topics/farm-economy/farm-sector-income-finances/2012-farm-sector-income-forecast.aspx.