* Net farm income down 3 pct from 2011's record
* Production costs up 8 pct, feed rises 18 pct
* Big increase expected in insurance payments
* Farm equity to top 2011 record as assets rise
By Charles Abbott
WASHINGTON, Nov 27 U.S. farm income will drop by
3 percent this year, the result of surging production costs
aggravated by crop losses that stemmed from the worst drought in
half a century, the government said on Tuesday.
Even so, income would be close to the record high set in
2011, the Agriculture Department said. In a quarterly forecast,
it said production costs would rise by 8 percent this year,
outpacing a gain in crop and livestock income.
Feed costs are up 18 percent this year, the USDA said. Feed
would account for 40 percent of the overall increase in costs.
"Despite gains in almost all sources of farm income, larger
increases in farm expenditures, especially for purchased feed,
have more than wiped out those price-led gains to farm income,"
The largest increases in farm income would come from
insurance indemnities, the USDA said.
So far, crop insurers have paid $6.3 billion on losses this
year. Some analysts say the drought in the Farm Belt will drive
indemnities to $20 billion, nearly double the record set last
STEEP ANNUAL RISE IN COSTS FOR A DECADE
The USDA will make its first estimate of farm income in 2013
in February, at the same time it closes the books on 2012.
The new year "could be another in a string of unusually high
income years," said analyst Mark McMinimy of Guggenheim
Securities. Crop prices should remain high at the same time
yields rebound from drought, he said. Bigger crops would give a
break to livestock producers squeezed by high feed costs.
High farm income gives producers the cash to update their
equipment and pay for seed, fertilizer and pesticides. Their
outlays buoy businesses ranging from Deere and AGCO to Monsanto,
Syngenta, Potash Corp and Dow AgroSciences.
The 8 percent rise in production costs this year would
follow a 9 percent surge in 2011. The USDA said the string of
large year-to-year increases in production costs dated to 2002.
Sharply higher market prices -- corn up by $1 a bushel and
soybeans up by $2 a bushel -- will more than offset the
drought-shortened harvest, meaning larger receipts for growers.
The corn crop is down 13 percent and soybeans down 4 percent
from 2011. Livestock production, except for hogs and milk, would
rise in value.
RISING LAND VALUE BOOSTS FARM EQUITY
Farm real estate -- land and buildings -- was forecast to
rise by 7.6 percent in value nationwide this year, despite
widespread drought. As a result, farm equity is forecast to set
a record, at $2.27 trillion, up 7 percent from the previous mark
set in 2011.
Higher equity will mean lower debt-to-asset and
debt-to-equity ratios, said the USDA. The debt-to-asset ratio,
now 10.7 percent, would drop to 10.5 percent.
"These declines reflect the farm sector's improving solvency
position," it said.
While farm real estate debt was forecast to hold steady,
non-real estate debt would climb by 10 percent from 2011 as
farmers buy equipment and expand their working capital.
"During 2012, farmers have continued to invest substantially
in equipment, structures and land improvements," the USDA said.
The USDA forecast net farm income of $114 billion this year.
It pegged net cash farm income at $132.8 billion, down 1.4
percent. Net farm income is a gauge of farm sector wealth. Net
cash farm income is a measure of solvency, or the ability to pay
DROUGHT JEOPARDIZES 2013 CROPS
Sixty percent of the continental United States is under
moderate to exceptional drought, with the worst conditions in
the wheat-growing U.S. Plains that stretch from North Dakota and
Montana into Texas.
Persistent dry weather imperiled the winter wheat crop, now
in its worst condition ever for late November. The crop will be
harvested next spring. Dry soil in the Corn Belt has prompted
concern about the prospects for corn and soybeans in 2013.
Agriculture Secretary Tom Vilsack cited the uncertain
outlook in a statement that saluted the resiliency of the farm
sector in this year's drought and the support provided by the
government, which heavily subsidizes the privately run crop