There's good news and bad news in the 2012 Farm Income Forecast, released Tuesday by the U.S. Department of Agriculture.
The good news: All major sources of farm income are expected to rise in 2012.
The bad news: Large increases in farm expenditures, especially for feed, have more than wiped out gains to farm income.
Net farm income is forecast to be $114 billion in 2012, down 3.3 percent from 2011.
"Today's forecast is heartening. It confirms that American farmers and ranchers remained impressively resilient in 2012, even with tough odds due to one of the worst droughts in more than a generation. Thanks to its ability to remain competitive through thick and thin, U.S. agriculture is stronger today than at any time in our nation's history, supporting and creating good-paying American jobs for millions. While down slightly from the August forecast, (Tuesday's) estimates for net farm income are the second-highest since the 1970s, while total farm household income is expected to rise. At the same time, the positive trend of falling debt ratios continue. The forecast suggests that strong farm income should remain a positive factor in carrying farmers and ranchers into the 2013 growing season," said U.S. Agriculture Secretary Tom Vilsack.
The forecast of 2012 net farm income declined 6.7 percent between August and November as new data became available. In particular, the November net farm income forecast reflects changes between the August and November World Agricultural Supply and Demand Estimates and the August and November ERS market outlooks for various crops and livestock groups. In addition, the November forecast incorporates corrections in the value of the net change in crop inventories, which was inadvertently overstated by $3.3 billion in August.
In Stanislaus County, farmers have been fortunate to not have to deal with the drought that has caused devastation in the Midwest, or the affects of Superstorm Sandy in the East.
"We're kind of lucky because we have really strong irrigation districts, a pretty much stable source of water. We don't have the drought situations like in the Midwest; we're pretty lucky in that respect," said Stanislaus County Farm Bureau Executive Director Wayne Zipser.
But it isn't all good news for county farmers. Farm production expenditures are still on the rise, said Zipser. California had the largest percentage of the U.S. total farm production expenditures in 2011 at 9.8 percent. And the cost of fuel, feed and fertilizer continues to rise.
"Hopefully, we see (costs) leveling off; hopefully, we see fuel prices coming down," said Zipser. "Overall, I think we'll see some stabilization of input costs. But here in California, we have continued regulation pressure from government to comply with those regulations..those are some of the issues we have to deal with along with input costs."
Despite the increase in farm production costs and state regulations, Zipser is quick to note that here in the Central Valley we grow over 300 different crops.
"Ag is the bright spot for the economy here locally," he said.
Production expenses on the rise in 2012
Total U.S. farm production expenses in 2012 are forecast to rise $23.5 billion (7.6 percent); this follows a $25.3-billion (8.9-percent) increase in 2011. Total expenses in 2012 fall into a string of large year-to-year movements that have taken place since 2002, and would reach another record-high level in nominal dollars. Since 2002, nominal total production expenses have risen $143 billion (74.5 percent). In inflation-adjusted dollars, 2012 production expenses will eclipse the previous peak reached in 1979.
Major crop-related expenses are predicted to rise $4.8 billion (8.7 percent), significantly 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 2.5 percent this year, compared to a 30.2-percent jump in 2011. Fertilizer expenses are slated to rise $1.6 billion (6.3 percent) as opposed to $4.1 billion (19.5 percent) in 2011. Seed expenses should finish $2.1 billion (11.9 percent) higher, a greater increase than in 2011, as prices are expected to rise 7.8 percent and planted acreage was up 3.4 percent. Pesticide expenses are also expected to increase more than $1 billion.
Total labor expenses are forecast to rise around $200 million (0.7 percent) as a result of a nearly offsetting increase in wage rates and an expected 2.4-percent decrease in total output. Employee compensation for hired labor accounts for most of the projected increase. Output of the commodities that employ the most labor is mixed. Vegetable, greenhouse and nursery, and dairy output are slated to increase in 2012, but fruit and nut output is expected to fall more than 3 percent.
Government payments forecast up
Government payments paid directly to producers are expected to total $10.9 billion in 2012, a 4-percent increase over 2011. Direct payments under the Direct and Countercyclical Program and the Average Crop Revenue Election Program are forecast at $4.98 billion for 2012. This 5.7-percent increase in direct payments 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 limit payments by market-based commodity programs to only $52 million in 2012.
The Milk Income Loss Contract Program compensates dairy producers when domestic milk prices fall below a specified benchmark price. For 2012, dairy producers are expected to receive $460 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 in 2012 has raised the benchmark MILC program price and triggered payments to dairy producers.