11/15/05 Energy inputs cut bottom line

It was just last August U.S.D.A. economists predicted that 2005 net farm income for U.S. ag producers would reach about $85.2 billion dollars, just shy of the record amount recorded the year before. However, when the August report was made, Chief Economist Keith Collins added a caveat, that net farm income could vary in the coming months due to increasing fuel and fertilizer costs. So when last week's revised net farm income projections were announced by Collins and others at U.S.D.A., it came as no surprise that the latest number came in lower, at $83.2 billion dollars. COLLINS: This number however is down about $2 billion dollars from our August estimate, primarily because of a large increase in energy expenses. What we are now looking at in energy expenses is over a five billion dollar increase from last year to this year in fertilizer, fuel, and oil costs for producers. Now the revised net farm income figure is still the second highest amount recorded in U.S. history. But to describe the significance of the impact increased fuel and fertilizer costs have had on agriculture in recent months, Collins points out that those costs have not increased this dramatically for farmers and ranchers in a quarter of a century. COLLINS: For fuels and oils, we believe farmers' expenses will be up about forty-one percent. The last time we had an annual increase for fuels and oils that was about forty per cent was in 1980. So it's been twenty five years since we've had an annual percentage increase as big as what farmers are facing this year. Much of that was caused by the combination of peak energy use coming during harvest time which coincided with the disruptions in fuel supplies caused by Hurricanes Katrina and Rita. But despite the lingering negative effects the fuel and fertilizer price increases have had on agriculture, Collins notes a bright side. The increase in input costs and bigger crops have depressed farm-gate prices, but they have also triggered greater subsidy payments. COLLINS: We've kept market receipts about the same as we were estimating in August. We have larger crops and lower prices. Those two tend to offset one another and tend to keep market receipts about the same. But the lower prices trigger higher government payments. And we raised our government payment estimate to $22.7 billion dollars for 2005. That would be second highest ever, second only to the year 2000. And it's over nine billion dollars more than what we spent on government payments in 2004.