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Farmers Seen Growing More, Earning Less as Drought Eases

February 11, 2013

Farmers Seen Growing More Yet Earning Less as U.S. Drought Ebbs

Cattle stand in holding pens waiting to be sold at the United Producers Inc. livestock auction in Little York, Indiana. Photographer: Ty Wright/Bloomberg

Farm income may fall this year even as the worst U.S. drought since the 1930s eases, economists say.

The government’s first farm-income forecast for 2013 today may show crop revenues down from last year as increased production drives prices lower, said Pat Westhoff, director of the Food and Agricultural Policy Research Institute at the University of Missouri. Livestock sales volume probably will fall, with the cattle herd at the smallest in 61 years, he said.

“If you assume normal weather, you have to think that revenue levels for 2013 will be down from 2012,” when the drought pushed prices higher and farmers qualified for record insurance payments, Westhoff said. “How much that will affect individual producers will depend on their own individual circumstances.”

The U.S. Department of Agriculture in November estimated farm net income for 2012 at $114 billion, down from a record $117.9 billion in 2011 as the drought devastated crops and forced ranchers to cull herds. That figure will be updated today. Farm expenses are higher, with costs including Monsanto Co. (MON:US) seeds up 5.2 percent in January from a year earlier, according to the USDA.

Still, Andrew Beck, chief financial officer of Agco Corp (AGCO:US)., maker of Massey Ferguson tractors, said in a conference call last week that farmer profits should be enough to “support healthy demand” for his company’s products.

Crop Insurance

Farmers last year made up for drought-related crop losses with record insurance payouts. With claims still to be processed, government-subsidized payments from companies including Ace Ltd. (ACE:US) and Wells Fargo & Co (WFC:US). for 2012 crop losses have already surpassed $13.6 billion, exceeding the $10.84 billion paid out for 2011, at the time the highest ever, the USDA said Feb. 4. Indemnities may reach $16 billion, then drop to $10.1 billion for this year’s crops, according to a congressional estimate.

While the drought is lingering over much of the Great Plains, rains have improved prospects further east, with Illinois, traditionally the second-biggest corn producer after Iowa, free of severe dryness, according to the U.S. Drought Monitor.

Still, even in areas where soil moisture has been replenished, the effects of the drought may linger in the minds of some farmers, said Bob Young, chief economist for the American Farm Bureau Federation.

Rain Needed

“It affects people’s thinking, and there was so much corn planted last year you may see some acres go to other crops simply because of farmers’ rotations,” said Young, who said profits could still top $100 billion this year. Still, many farmers will simply put 2012 behind them, he said. “Corn returns continue to look pretty good,” he said. “It’s all going to come down to spring rains. If we don’t have timely rains, we’ll be in trouble.”

Livestock income, the second-biggest source of revenue after crops, may be limited by a need for ranchers to hold onto animals and rebuild cattle herds, said Terry Detrick, who raises cattle, wheat and rye near Enid, Oklahoma, and is president of the Oklahoma Farmers Union. Besides having less to sell, Detrick said his income will be limited this year because wheat he would normally market is being fed to cattle because of a lack of grass.

“I bet I haven’t had 2 inches of rain since last June,” said Detrick, 68, in a telephone interview. “It’s going to take two or three years of good rains for things to come back.”

Today’s estimates for 2013 will be revised in August, just before major crops are harvested.

To contact the reporter on this story: Alan Bjerga in Washington at abjerga@bloomberg.net

To contact the editor responsible for this story: Jon Morgan at jmorgan97@bloomberg.net


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