Last week, USDA issued its initial forecast for net farm income for 2012 and lowered its estimates by 6.5% vs. its revised 2011 projections of $98.1 billion. Its earlier 2011 forecast called for $100.9 billion.

While down year-over-year, farm income is forecast to remain 28% above the prior 10-year average of $71.5 billion. Although gross farm income is forecast to rise $6.2 billion in 2012 to $425.5 billion — plus 1.5% — USDA noted “total production expenses are forecast to rise $12.5 billion, or 3.9% in 2012 to $333.8 billion.”

USDA’s 2012 forecast of cash receipts of $364.1 billion is up 0.3% from revised 2011levels, on higher crop receipts of 0.7% to $198.3 billion, partially offset by a slight 0.1% decline in livestock receipts to $165.8 billion. USDA noted seed, fertilizer and pesticide expense “are projected to increase moderately, about 1%, as a group.”

“Although USDA forecasts farmer cash net income to decline 11.5% in 2012 to $96.3 billion, the forecast remains 20% above the prior 10-year average of $80.3 billion,” says Henry Kirn, analyst for UBS Investment Research. “We remain bullish on the farm equipment cycle, as our channel checks indicate improving demand and pricing.”

— Ag Equipment Intelligence, February 2012