While drought continues to threaten the U.S. agriculture economy in 2012, another significant setback has been added to the growing list of negative impacts to farm income for 2012.

USDA’s National Agricultural Statistics Service released their 2011 Farm Production Expenditures Summary Aug. 3 that indicated elevated production costs for the previous year rose more than10 percent, a spiraling trend that economists say continues into the current year as drought conditions threaten to chip away at farm income across the industry.

Farm production expenditures in the United States are estimated at $318.7 billion for 2011, up from $289.1 billion in 2010. The 2011 total expenditures rose 10.2 percent compared with 2010 total expenditures. All expenditure items except interest and labor increased from the previous year.

Leading the list of higher production costs was the cost of diesel. Total fuel expense was $15.3 billion. Diesel, the largest sub-component, was $10.1 billion, accounting for 65.9 percent. Diesel expenditures were up 23.7 percent from the previous year. Gasoline was $2.8 billion, up 9.4 percent. LP gas was $1.6 billion, up 8.8 percent. Other fuel was $820.0 million, up 13.9 percent.

Overall, the four largest expenditures at the United States level totaled $147.1 billion and accounted for 46.1 percent of total expenditures in 2011. They were: feed, 17.1 percent; farm services, 11.6 percent; livestock, poultry and related expenses, 9.0 percent; and labor, 8.4 percent.

Dr. David Anderson, livestock economist for Texas A&M University’s Department of Agricultural Economics, says higher input costs, especially for the livestock and poultry segments, are at least in part the result of lingering drought conditions.

“We certainly have seen a spike in feed costs that are directly related to the drought. But other input costs—fertilizer for example—may be related more to a bumper corn crop year in 2011. The more acres of crop means more demand for fertilizer, so prices rose as a result,” Anderson says.

But on the bright side, once drought conditions fade and forage production returns to near normal levels, producers should get some relief.

“Call me terribly optimistic, but I think once pasture and range recovery takes place, then we will begin to see expansion in livestock production again and elevated input costs related to drought conditions will slowly get back to normal—or so we hope,” he adds.

In addition, he says while consumer demand for beef may suffer if and when beef prices rise next year, once more normal weather returns and forage production is no longer regulated by shortages, consumer demand should return to normal as well.