By American Farm Bureau Federation
How can net farm income set a record considering the severity of the drought? AFBF Economist Todd Davis explains in this report from AFBF’s Johnna Miller & American Farm Bureau Economist Todd Davis.
Miller: The U.S. Department of Agriculture is projecting record-setting net farm income for 2012.
Davis: The most recent estimate actually shows net farm income increasing about 4 percent from last year. I think the greatest surprise is this is a massive drought and a lot of people that are not involved in agriculture would be shocked to think that a drought and net farm income increases go together.
Miller: American Farm Bureau Economist Todd Davis says that’s really not unusual. Shortages raise the prices farmers receive for crops.
Davis: But that doesn’t mean that every farmer in the U.S. has increasing net farm income. The livestock sector is actually paying more for feed, so their net farm income is declining. Dairy has been the hardest hit because they have higher costs and the price of milk is coming down. So they’re losing money.
Miller: Crop insurance payouts are included in the income projection. So farmers who might otherwise have gone under due to the drought will be able to plant another crop next year.
Davis: It’s very easy to say that net farm income is a record, but I don’t want to minimize the damage that’s been caused by this drought on the individual farmer. This drought has demonstrated that the risk management tool, crop insurance, works well. What the farm bill has as a major component are tools that supplement and increase the safety net for producers.
Miller: We have two extra actualities with AFBF Economist Todd Davis. In the first extra actuality he talks about the cyclical nature of the agriculture economy. The cut runs 25 seconds, in 3-2-1.
Davis: Agriculture is cyclical with periods of booms and busts. We’ve been enjoying increasing net farm income as an industry the last four years. But along with increasing prices and revenue you have increasing costs and it doesn’t take much of a shift in prices coming down for these profitability margins to get squeezed and for people to lose money, creating a period of economic busts. We’ve seen that before and we’re going to see it again. That’s the nature of the economy.
Miller: In the second extra actuality Davis explains what all this means for consumers. The cut runs 23 seconds, in 3-2-1.
Davis: It will take a while for the effect of this drought to be measured and for the market to absorb some of this effect. You will see greater impact in the products that consume corn and soybeans directly, which will be the meat the dairy and eggs. A lot of products have corn, but not in great quantities and so that effect on consumer prices is going to be less than the products that directly eat the corn like the meat and poultry.
Miller: Newsline will be updated Thursday, September 6th by 5pm Eastern time due to the Labor Day Holiday. Thank you for listening.
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