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U.S. Farm Income May Hit New Record, Despite Drought
USAgNet - 11/19/2012

Farm and ranch income shriveled this summer during the worst drought in half a century, according to three Federal Reserve regional banks that oversee Farm Belt lending, with livestock producers hardest hit as pastures withered and feed prices soared. Even so, agricultural economists from the Fed banks say the farm sector could post record high income this year. High market prices and insurance indemnities will help compensate grain producers for drought-shortened crops, a buffer that livestock producers lack, they said on Friday.

According to numbers obtained by Reuters, the Federal Reserve's regional banks in Kansas City, Chicago and St. Louis said red-hot land prices climbed further despite the drought. In Nebraska, non-irrigated farm land values soared by 30 percent from a year earlier. Iowa's values were up 18 percent and Illinois' up 15 percent.

"A lot of farmers think the future of agriculture is promising and want to expand," said David Oppedahl, agricultural economist at the Chicago Federal Reserve Bank, who said crop farmers are flush with cash and, with interest rates low, see few alternatives to land for investment.

The farm sector has enjoyed boom times since 2006, when the world entered an era of tight supplies and high but volatile commodity prices.

In quarterly newsletters, the regional banks described the financial impact of drought on farmers. The Kansas City Fed cited a sharp decline in third-quarter farm incomes "as escalating feed and fuel prices pushed production costs higher," while the St Louis Fed said "farm income and capital spending were down significantly in the third quarter."

The Chicago Fed forecast higher feed costs will drive down cash earnings this fall and winter for dairy, cattle and hog producers from a year ago. Crop farmers, in contrast, may actually make more money, it said.

In August, the Agriculture Department forecast record farm-sector income this year, up 3 percent from 2011.

High market prices and crop insurance would offset the losses from "extreme heat and dryness in the Plains and Corn Belt," it said, even as livestock costs climb. USDA is scheduled to update its forecast on November 27.

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