The USDA announced on Monday that net farm income for 2011 is expected to be $94.7 billion, up 19.8% from 2010 due to rising grain prices, partially offset by higher production costs. 2011 net farm income is the second highest inflation-adjusted value recorded in the last 35 years.
Sales of corn for grain are expected to increase 23% in 2011 and to be roughly 87% of 2011 feed crop receipts. The quantity of corn sold in 2011 is expected to decline slightly, but will be more than offset by an estimated $1.09 per bushel increase. Increased demand for corn in 2011 is primarily driven by higher ethanol production and exports.
Sales of soybeans are expected to increase roughly 27% in 2011, driven by a 5.5% increase in sales and an expected rise in price of over $2 per bushel. Soybean exports are expected to reach record levels due to high foreign demand.
Production costs for 2011 are expected rise 7% to $307.5 billion. Total expenses are forecasted to be 77% of gross farm income, down 1% from 2010. The USDA expects fertilizer expenses to rise 14% due to an increase in the number of acres planted and an 11% rise in fertilizer prices. Pesticide expenses will rise 7.2% and prices paid for fuel 13%.
Government payments are expected to decline 12.7% in 2011 to $10.6 billion. The decline is primarily due to producers enrolling in the ACRE program and the estimate of no countercyclical payments being made in 2011.
Livestock and poultry producer cash receipts are only expected to increase 3% in 2011, despite a similar rise in expenses as crop producers. Cattle production is expected to be lower in 2011, but pork and broiler production should rise slightly.
2011 should be very profitable for farmers with grain prices at two year highs. Smart farmers who pre-bought expenses should have a record year for profit margins. We expect famers will reinvest their profits to expand their operations in 2011. Farmland should be the primary beneficiary of the record net farm income, but machinery, fertilizer, and seed should also see record sales.
The USDA estimates that farmers will plant 326 million acres in 2011, a 3% increase from 2010. Farmers are now trying to estimate what the optimal breakdown of grain planted will be and we expect a large transition to corn to capitalize on the high prices. The USDA will release their Prospective Plantings report on March 31.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.