Liz Farmer is a GOVERNING finance writer.E-mail: email@example.com
A searing drought last year across the Midwest caused more than 1,000 counties in 26 states to be declared natural-disaster areas – the largest such ruling that the U.S. Department of Agriculture has ever made – and was recorded as the worst drought since 1956.
But the massive devastation left few high and dry by the end of the year – thanks to crop diversification, along with a record $16 billion in crop insurance payments from the federal government, many farmers still ended the season on a high notes, experts said.
But it wasn’t an easy start to the season. Kentucky corn fields were the hardest-hit and yields in the Bluegrass State and its neighbors were at their lowest in decades. Corn production fell by 51 percent in Kentucky, yielding 68 bushels per acre (a 29-year low), according to recently released data from the USDA. The output represented a 50 percent drop from the state’s prior 10-year average of 133 bushels per acre. Missouri’s output of 75 bushels per acre was a 42 percent drop from that state’s 10-year average while Illinois, Indiana and Tennessee all experienced about a one-third loss in typical production, according to an analysis of the data by Governing.
Although state-level data is not yet available, new estimates from the USDA project that net farm income fell by 4 percent to $112.8 billion last year.
“It’s hard to put a value on it – it varies from farm to farm,” said Tom Womack, spokesman for the Tennessee Department of Agriculture. “Based on current corn prices, if you took one-third of production were lost [as it was in Tennessee], you’re looking at $3 to $4 million in loss of farm income [statewide].”
Additionally, that figure doesn’t take into account the money farmers spent to plant and tend to the crops in the first place. The economic losses also aren’t limited to the fields. Womack noted that the 2012 drought had a ripple effect across much of the Midwest that affected livestock and transportation costs. Because the water level in the Mississippi River was lower, barges had to carry lighter-than-usual loads, which increased shipping costs. The shortage in corn, also used for feeding livestock, also impacted that industry, Womack said.
But several factors helped buoy farmers, keeping them afloat through the dry spell. The biggest was crop insurance – the USDA which runs the program, has said that costs from the program are estimated to be $15.8 billion, up from $9.4 billion in 2011.
Still, crop insurance only kicks in if a crop cannot be harvested. Because many farmers were harvesting their crops only to find that the quality wasn’t good enough for even livestock feed, states were able to get a waiver from the USDA to allow farmers to sell those crops for poultry feed, which has different standards than corn sold for human consumption or livestock feed.
“It was better than zero but it wasn’t at a 100 percent,” said James Comer, Kentucky Commissioner of Agriculture. “It was a terrible year.”
But Comer said several other factors helped many farmers through the stretch. One is that many planted more corn in 2012, in anticipation of higher corn prices which hit a record average of $6 per bushel in 2011. With the shortage in 2012, prices were as high as $8 per bushel at the height of the drought and averaged a little more than $7 per bushel for the year. Even with the high losses, planting more corn and receiving record prices for their crops helped many farmers break even.
Lastly, crop diversification and Mother Nature helped end the season on a high note. Many farmers split their acreage between corn and soybeans. The rain finally came in July – just in time for soy bean crops, which had a record year, Comer said.
The typical net farm income in Kentucky is between $1 billion and $1.5 billion and thanks to high returns in other areas, a University of Kentucky College of Agriculture economist predicted 2012’s net income would be toward the high end of that range. The record net income for farms in the state was $2.1 billion in 2005 following the tobacco buyout.
Looking ahead, farmers are less worried about Mother Nature and the impacts of global warming than they are about Washington. The industry’s lifeline – the Farm Bill – was extended to September as part of the fiscal cliff deal reached in January. The bill includes crop insurance for this year but many are worried about security in the years ahead, Comer said. The Farm Bill is authorized every five years but has operated on temporary extensions for much of the last year.
“Even the strongest private insurer in the world cannot sustain losses like last year,” Comer said. “I consider food supply an issue of national security. That doesn’t mean subsidizing farmers but giving them assurances [through these] acts of god and nature. You have to have some type of safety net for the farmers.”
Source: U.S. Department of Agriculture
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