While income is up, so are production expenses—by some 3 percent from last year, keeping alive the trend of year to year increases since 2002. However, the increase is less than half of the increase seen in 2011 and 2012. The increase will only be 2.4 percent, compared to 6 percent last year. Production expenses will be at a record high of $352 billion.
A significant part of the higher production expense is due to the 12 percent increase in the cost of marketing, storage, and transportation of the larger volume of crop production. That more than offsets a large decrease in fertilizer costs and smaller decreases in expenses for fuel, interest, and capital consumption.
Feed expenses which rose significantly in 2012 will see less than a 2 percent increase for 2013. USDA says, “Feed prices were slightly below December 2012 levels through the first 8 months of 2013 and are projected to decline through the 4th quarter of 2013 due to lower corn and soybean prices.”
For crop production, 2013 provided a 1.4 percent drop in the overall cost of production. While seed and pesticide costs were up slightly, fuel and fertilizer prices were down. USDA says, “Fertilizer prices were down only slightly from 2012 through mid-2013 when most fertilizer was purchased. Since then, prices have declined sharply.”
In the stakeholder category, labor expenses went up 11 percent in 2013, pushing labor cots up more than 32 percent over the past 2 years. Some of it was due to more labor being needed for larger crop production in 2013. Cash rents to land owners went up 6.6 percent in 2013. And interest expenses paid to lenders was up 3 percent in 2013.
Interestingly, the USDA’s 2013 forecast for net farm income is nearly 8 percent more than what USDA forecast in August. That results from a forecast of higher net cash income by some $8.9 billion. That was the result of price gains in some crops and a higher estimate of the volume of crops that would be stored as opposed to marketed. The change also reflected a higher value of livestock products and a reduction in the estimate of production expenses due to lower fertilizer prices.
2013 brought a different financial picture to agriculture, compared to 2012, primarily due to more crop production. Although crop production was larger, more will be stored, throwing net cash income from 2013 into 2014. The lower crop prices helped reduce feed costs for livestock, and with lower fertilizer prices, production expenses did not rise as much as expected. The result is higher net farm income in 2013, but because of the delays in grain marketing, the cash income will not be realized, and net cash income will drop below net farm income, which is atypical.
Source: FarmGate blog