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US sees 2013 farm income highest since 1973

WASHINGTON (Reuters) — U.S. farm income will hit a 40-year high in 2013, driven by gains in livestock income, according to a new forecast earlier this week from the U.S. Department of Agriculture.

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USDA’s Economic Research Service estimated net farm income of $131 billion for 2013, up significantly from an earlier forecast of $120.6 billion and up 15 percent from $113.8 billion in 2012.

After adjusting for inflation, net farm income for 2013 is expected to be the highest since 1973, USDA said. Net farm income has been on an almost unbroken upward trend since 2002.

Cash crop receipts will fall 3 percent in 2013, USDA said, as some of the year’s larger crops, especially corn and soybeans, will not be sold by year-end.

That decline, as well as rising expenses, will be partially offset by an almost 6 percent increase in livestock receipts.

Net cash income is forecast to decline by 3.4 percent on the year, to $129.7 billion, although that estimate has been hiked by almost $9 billion since August.

Production expenses continue to climb, up 3 percent to $352 billion, but rising at a slower pace than in 2012 and 2011.

USDA said increases in farm asset values are expected to continue to exceed increases in farm debt, leading to another record high for farm equity.

Farm asset values — chiefly farmland — are expected to rise by 7 percent in 2013 and farm sector debt by 3.3 percent, pushing farm equity up by a strong 7.4 percent.

“Farmland values are expected to continue rising, given the relative strength of commodity prices, accommodating interest rates, and expectations of continued favorable net returns both from the market and from government programs, including crop insurance,” USDA said.

Bracing for change

After more than six years of unprecedented boom in the U.S. farm economy driven by a government-backed drive for biofuels, record low interest rates and rising food exports, American grain farmers and their bankers are bracing for change.

U.S. farmers have just finished harvesting their largest corn crop in history — taking the steam out of a long bull market. Earlier this month, the Obama administration also signaled that renewable fuels were losing political favor as the Environmental Protection Agency proposed cutting the amount of corn-based ethanol oil refiners must blend into U.S. fuel supplies.

The EPA news sent the corn market to its lowest in 3 years, with prices trading near $4 a bushel on the Chicago Board of Trade, compared with record levels above $8 in the summer of 2012 in the midst of the historic Midwest drought. Soybeans, wheat and other crops have eased from a year ago, along with corn, the grain bellwether, with almost 100 million acres planted in the United States, the world’s largest corn grower and exporter.

A growing number of farm bankers and economists interviewed at a Chicago Federal Reserve conference and the American Bankers ag meeting in Minneapolis this month warned farmers to brace for change in the coming year. Grain farmers will see their income shrink even as costs to produce crops stay high. Farm land rents and seed costs are among the biggest costs that may resist declines in the face of falling crop revenues, but fertilizer also remains pricey, they said.