Sun, Nov 25, 2012 - Page 9 News List

Drought brings record income for US farmers

A dry spell in the US may have shriveled crops, but it has brought record-high income because of higher prices paid for crops, drought insurance payouts and rapidly rising farmland values

By Jeff Wilson and Elizabeth  /  Campbell Bloomberg

The surge in US farmland prices signals the market may be in a bubble, Alex Pollock, a former chief executive officer of the Federal Home Loan Bank of Chicago, said in a Nov. 16 Heritage Foundation report. The gains would be threatened by higher interest rates and lower crop prices, he said. The Federal Reserve has pledged to keep rates at a record low until at least mid-2015.

Farmers National Co, the largest US farm manager, sold a record 850 properties at a combined value of US$640 million in its most recent fiscal year. Transactions rose 20 percent and prices as much as 15 percent.

“Insurance payments will keep most farmers whole and profitable this year, so the drought affect was minimized,” its CEO Jim Farrell said. “We are coming off of back-to-back record income years on the farm, so they were better able to withstand a poor crop.”

While corn futures fell 12 percent since reaching a record in August, the USDA is still forecasting a record annual average for prices paid to farmers. It also expects the highest averages ever for soybeans and wheat.

That will help spur gains in domestic food prices of as much as 3.5 percent this year and 4 percent next year, above the average of 3 percent since 2004, according to the USDA. Food costs, including beef, may rise 5 percent to 8 percent next year for the Louisville, Kentucky-based steakhouse chain Texas Roadhouse, its CEO Wayne Kent Taylor said on a conference call with analysts on Nov. 1.

The US dry spell is expected to persist at least through February in most areas and spread across Texas, the US Climate Prediction Center said in a three-month outlook on Nov. 15. The lack of water is threatening the winter-wheat crop.

“We remain in the middle of a weather market,” said Jason Henderson, an agricultural economist at the Federal Reserve Bank of Kansas City. “If drought conditions abate, we will have a strong rebound in production. If the drought lingers, that will challenge the ability to raise bumper crops.”

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