Historic drought will cut farm profit 3.3%

  • Article by: ALAN BJERGA , Bloomberg News
  • Updated: November 27, 2012 - 7:22 PM

Increases in feed and fuel costs for farmers outpaced higher crop prices.

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Oct. 12: A central Illinois farmer cultivates his cornfield.

Photo: Seth Perlman, Associated Press

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The worst U.S. drought in more than five decades will lower farm profits 3.3 percent this year from 2011 as rising feed costs outweigh higher crop prices caused by drier conditions, the government said.

Income will fall to $114 billion from 2011's record $117.9 billion, the U.S. Department of Agriculture said Tuesday on its website. The estimate for this year is down from $122.2 billion in August. Expenses such as diesel fuel and animal feed will increase 9 percent to an all-time high of $237.1 billion.

Corn futures traded in Chicago surged 68 percent from mid-June to reach a record $8.49 a bushel on Aug. 10, while soybeans set a record and wheat rose to its highest in four years. The drought may raise food costs for consumers as much as 4 percent in 2013, the USDA said last week. Corn has since fallen 12 percent through Monday, while soybeans are down 7.1 percent and wheat 2 percent in the past three months.

"Solid gains in the projected annual value of U.S. agricultural production will be more than offset by increases in purchased inputs and payments to stakeholders," the department said in a statement. "In particular, feed expenses are forecast to increase almost $10 billion in 2012."

Agriculture is responsible for about 1.2 percent of U.S. gross domestic product, according to the department. The worst drought since 1956 may continue through February, according to the USDA.The value of crops bought by companies such as Cargill Inc. or Archer Daniels Midland Co. will rise 2.7 percent to a record $210.3 billion this year, while revenue from livestock sales will increase 2 percent to $167.9 billion, the USDA said.

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