UK Ag Economists: Record Year for Farm Income

LOUISVILLE, Ky. (Dec. 2, 2011) – Reflecting national trends, Kentucky’s farm economy did extremely well in 2011, with farm cash receipts likely to exceed $5 billion for the first time, up from $4.4 billion in 2010, estimate agricultural economists with the University of Kentucky College of Agriculture.

Official U.S. Department of Agriculture 2011 cash receipts for Kentucky won’t be released until summer 2012, but UK Extension Professor Will Snell said the team of UK economists is seeing improvement in returns in corn, soybeans, wheat, cattle, horses, hogs and dairy. Net farm income is expected to rebound back above $1 billion in 2011, compared to $780 million in 2010.

Growth was seen across the nation, despite a severe drought in some areas of the country. The USDA projects U.S. net farm income will reach a record high of $100.9 billion, up 28 percent over last year and 50 percent higher than the 10-year average.

Snell and UK agricultural economists Craig Infanger and Kenny Burdine agree that the force behind the improved financial returns in agriculture is the boom in exports over the past two years and the strong demand for grains for biofuel production.

“U.S. farm exports plunged in 2009, but then jumped to $109 billion last year,” Snell said. “Ag exports rebounded to a record $137 billion in 2011. It’s not so much that the volume of exports has been impressive; it’s that prices have soared.”

Snell, Infanger, Burdine and fellow UK agricultural economists Cory Walters and Tim Woods, along with Kentucky Farm Business Management Program Coordinator Jerry Pierce presented a 2012 Kentucky farm economic outlook and an overview of 2011 as part of the annual Kentucky Farm Bureau Federation conference in Louisville on Thursday.

Corn and poultry are likely to be the top two sources of cash receipts in Kentucky this year, helped by favorable growing conditions and substantially higher corn prices. Corn, soybean and wheat prices continued to trend upward, with corn up 29 percent, soybean 16 percent and wheat up 30 percent. Kentucky producers planted increased acreage in response. Walters said the higher prices, increased acreage and higher yields resulted in a significant increase in revenue.

Poultry production increased slightly in 2011, though it is projected to decline in 2012. Lower production, higher feed costs and higher export levels will tighten supplies, which could stimulate a price increase from $.02 to $.04 per pound.

Kentucky’s tobacco acreage was down in 2011, but a better quality crop enabled prices and receipts to improve. Snell added that without additional price incentives, tobacco acreage for 2012 could continue to slide despite stabilizing demand.

The equine industry held stud fees steady and showed strong 2011 September yearling and November breeding stock sales, resulting in a moderate improvement over 2010 receipts.

“Those sales were likely supported by pent-up demand, tax incentives and some significant dispersals,” Burdine said.

He predicted receipts should remain steady next year, if the market remains relatively strong.

Feeder cattle prices in Kentucky showed substantial improvement, driven primarily by tight supplies. Burdine thinks this will continue into 2012, because the drought in Texas and Oklahoma has resulted in higher cow slaughter, which should lead to an even smaller calf crop in 2012.

For the first time, Kentucky’s forest industry was included in the economic outlook presented by the specialists. Jeff Stringer, extension professor in hardwood silviculture and forest operations, said Kentucky’s forestry sector continued to face challenges because of the economic downturn that has suppressed building and related production such as furniture and flooring. Since 2008, the state has lost 9 percent of its wood industries and employs 21.6 percent fewer Kentuckians. Stringer predicted that the forestry sector will continue to be tied to domestic housing starts in 2012, but overseas markets remain viable, likely providing more opportunity for market expansions than domestic markets, despite economic instability in Europe and a softening of Asian markets.

On the whole, the UK agricultural economists were optimistic about 2012. Given reasonable weather, continued economic recovery and strong export markets, the team believes next year’s farm cash receipts could set another record high, topping out between $5.3 and $5.7 billion.

A copy of the outlook publication including information on individual farm sectors can be found at http://www.uky.edu/Ag/AgEcon/pubs/ext_other/2012KYOutlook.pdf.

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