US farmers face 38pc profit drop

Profits for US farmers will plunge more than expected this year, dropping 38 per cent from 2008 as the recession erodes demand for crops, livestock and dairy products, the government said.

Net farm income would sink to a seven-year low of US$54 billion, down from a February forecast of US$71.2 billion and last year's estimated US$87.2 billion, the US Department of Agriculture reported yesterday. Farm-product sales were dropping faster than costs for energy and feed, it said.

In dairy, milk futures have plunged almost 50 per cent from their June 2007 peak as record production and competition from imports flooded the market with inexpensive supply.

"I haven't talked to a dairy farmer who isn't losing money," said Jim Goodman, an organic-milk producer who farms 200ha about 113km northwest of Madison, Wisconsin.

Farms with at least 1000 cows were losing US$30,000 to US$40,000 ($44,000-$58,000) a month, he said.

Revenue from dairy products might fall 34 per cent this year to US$23 billion, while the value of meat animals would drop 11 per cent, said the USDA.

The agency last week said milk and egg prices would fall more than had been expected this year, and meat costs would rise more slowly. Milk might decline 6 per cent from last year, eggs might slip as much as 16 per cent, while meat and poultry's increase would be no more than 2.5 per cent.

Among farm expenses, the cost of fertiliser would decline about 25 per cent from last year to US$16.9 billion, while pesticides would increase 2.6 per cent to US$12 billion, according to the government report.

Petroleum costs would drop 30 per cent to US$11.3 billion.

Government subsidies would rise 3 per cent in the first full year of a new farm bill, to US$12.6 billion.

The price of corn, the biggest US crop, had plunged 46 per cent in the past year. Hog farmers had lost an estimated US$4.5 billion since September 2007, and dairy herds were being culled because of a milk surplus. Profits had declined for grain processors, including Cargill and makers of farm equipment such as Deere & Co and Agco.

"Hogs were devastated by the H1N1 flu, and dairy isn't getting off the mat," said Bruce Babcock, the director of the Centre for Agricultural and Rural Development at Iowa State University. "The outlook for crops is rosier."

Crop receipts would decline 9.8 per cent to US$164.7 billion, and livestock revenue would fall 15 per cent to US$118 billion, as input costs fell 6.4 per cent, the USDA said.

The total value of farm production for 2009, which includes rent, government aid and other benefits from agricultural operations, was projected at US$322 billion, down 12 per cent from last year, the department said.

The report might signal a second straight year of lower farmland values, which fell 3.2 per cent in 2008 after 21 years of gains, as well as less spending on farm equipment, said Dan Manternach, director of agricultural services at Doane Advisor Services.

Corn, wheat and soybean prices had plunged from records reached last year, and lower input costs were not helping farmers who made most of those purchases as early as one year ago, said Darrin Ihnes, who grows all three crops about 40km southwest of Sioux Falls, South Dakota.

"The ethanol industry is struggling, the livestock industry is struggling, and crops are starting to struggle as well," Ihnes said. Next year should be better as smaller herds helped boost livestock prices and exports improved.

Hog futures had tumbled 36 per cent in the past year through Saturday, as the recession and the outbreak of H1N1 swine flu curbed pork consumption. Producers had lost an average of US$21 per animal sold for slaughter since September 2007, as feed costs rose to a record last year and the recession and the H1N1 virus curbed pork demand in 2009, Don Butler, the president of the National Pork Producers Council, said last week.

Dave Bauer, the president of Brite Futures, in Milwaukee, said: "Somebody has to go out of business here."

- BLOOMBERG