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Record 2011 farm profits could stumble in 2012

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Against a backdrop of economic uncertainty, U.S. agriculture last year stood as a shining example of growth.

2011 set records, with net farm income topping $100 billion for the first time ever.

"Prices are up across the board for all the major crops, and while we've seen cost of production increases overall, they haven't increased as rapidly as the prices of crops people are selling," said Pat Westhoff, director of the University of Missouri Food and Agricultural Policy Research Institute. "Even corrected for inflation, farm profits are at or near the highest levels since the 1970s. That is indeed a very good outcome overall."

U.S. farm income rose 28 percent in 2011 compared to the previous year, according to USDA reports. Record agricultural exports topped $137 billion, while crop receipts rose 16 percent and livestock sales receipts averaged 17 percent more than in 2010.

For livestock producers, this year offers welcome relief from some tough times. When the economic recession hit, prices dropped sharply as demand for meat slumped, and high feed prices meant many livestock producers lost money. In response, some producers stopped raising livestock and others scaled back expansion plans. Westhoff said we're seeing a turnaround.

"We've seen higher prices for both hogs and cattle this year in a pretty sharp way after really tough years in 2008-2009," he said. "Now we're seeing a bit stronger demand for our meat overseas and at the same time we've got less supply.

"Events like the drought in Texas have reduced cattle numbers, so there will be less beef to be sold in 2012. That will help keep cattle prices high ahead of us for the next several years."

Going into 2012, chicken producers won't be as lucky. Demand for chicken has not kept pace with the appetite for red meat, and there is an expectation that chicken production will consolidate soon.

"That's causing talk of lower chicken production in 2012, and that's something that doesn't happen very often," Westhoff said.

Crop exports likely will fall short of last year. With less droughts and floods affecting foreign yields, competition will ramp up once again.

"Less soybeans, less corn, less wheat almost certainly will be exported in the current marketing year than last year," Westhoff said. "It's not that demand is necessarily weak, it's just lots of other countries are supplying those foreign markets."

It's hard to guess whether 2012 will bring another round of high prices, but higher yields, weaker exports and even the European debt crisis could hinder a repeat.

"There are lots of things that could go wrong in front of us, and instead of $5-$6 corn, $3-$4 corn could return," Westhoff said. "We're very much in a volatile situation, and what people think about the markets today will be different than six months or a year from now."

MU FAPRI provides economic analysis about agriculture issues and proposed legislation. It is funded in part by the MU College of Agriculture, Food and Natural Resources.



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