Exports have become a key driver in producer returns. Beef, pork and broiler exports were at record levels in 2011. Export outlook should be strong in 2012 as well, with the major constraint being tight supplies.

Prices for livestock, dairy and poultry were either at record levels in 2011 or expected to hit record levels in 2012. The all milk price is expected to decline by almost 9 percent as record high prices have resulted in increased milk production. Prices are expected to fall in the first quarter but should rise throughout the second half of the year.

Food prices to moderate

Food prices were closely watched in 2011 as year-over-year inflation rates for all food rose from 1.8 percent in January 2011 to 4.7 percent in November. Food at home inflation peaked at 6.2 percent, year-over-year, in October 2011.

Inflation estimates for January 2012 suggest food prices have begun to moderate. Year-over- year inflation rates for all food were estimated by BLS at 4.4 percent and for food-at-home at 5.0 percent.

ERS currently is forecasting inflation rates for all food and food at home to be between 2.5 and 3.5 percent for 2012.

Farm income

Agriculture’s strong performance is projected to ease in 2012. Net cash income for 2012 is forecast at $96.3 billion, down 11.5 percent from 2011, but still the second highest in nominal terms on record. Cash receipts for 2012 are forecast at $364.1 billion, a record high in nominal terms. Total expenses are projected to increase $12.5 billion.

Farm asset values are likely to increase by more than 5 percent for the third consecutive year. Debt is expected to rise 3.8 percent. The inflation-adjusted value of the farm sector’s equity is expected to establish a new record high.

Conclusions

It is gratifying for an economist to watch markets follow the basic laws of supply and demand. High prices have prompted a global production response for most commodities.

As a result of increased plantings and generally favorable yields, record production levels have been reached this year which have helped moderate prices for most crop prices.

Slowing demand for ethanol means that corn stocks will likely increase in 2012/12 assuming a return to trend yields. This should help moderate record feed grain prices.

Livestock markets should see increasing margins towards the end of 2012 as the new crop is harvested bringing down feed costs.

There are still a number of key uncertainties starting with the size of the South American corn and soybean crops and the persistent dry areas of the Southern U.S.

Nonetheless, prospects for U.S. agriculture continue to be strong with record income in 2011 and a strong balance sheet.