Farmers eye record income despite price plunge

WASHINGTON (Reuters) - A sharp plunge in commodity prices amid global financial turmoil will not prevent U.S. farmers from generating record net farm income of $86.9 billion this year, narrowly topping last year's all-time high, the Agriculture Department said on Tuesday.

The forecast for net farm income was down 9 percent from the last estimate of $95.7 billion in August, but surpassed the previous high of $86.8 billion set in 2007.

Net farm income measures the value of production during the calendar year, whether it is sold or held in storage.

USDA warned that, after several years of rising farm income, farmers and ranchers may experience a drop next year. The department will release its first forecast for 2009 on February 12.

"It's not nearly as rosy an outlook for the future as what some of us might have thought six months ago," said Nebraska farmer Steve Ebke, who on Tuesday was harvesting the last of his 2008 corn crop.

"Most of us never saw it coming," Ebke said, expressing regret that he didn't lock in high prices before they plunged.

And now, with seed and fertilizer prices still high, and crop prices low and moving lower, prospects for a break-even season next year look dim, he added.

Corn, soybean and wheat prices have fallen about 50 percent from their highs. Last week, corn notched a 13-month low while wheat reached its lowest price since June 2007.

So it's not surprising that the USDA lowered its income forecast, said Terry Francl, chief economist with the American Farm Bureau Federation.

"Clearly, as we look ahead, there are challenges," Francl said, noting farmers will increasingly have to show lenders they can make profits in 2009, even though costs currently exceed forecast prices.

PRICES STILL BEAT LAST YEAR - USDA

Crop prices for 2008 remain significantly higher than in 2007, even though they have dropped from all-time highs, the USDA said.

The value of crops was forecast at $181 billion, down $7.8 billion from earlier estimates, but exceeding 2007's record by 20 percent.

Cash receipts in 2008 are anticipated to increase about $16 billion for corn, $5.5 billion for soybeans, and $6.5 billion for food grains, with wheat accounting for most of the jump.

Livestock, dairy, and poultry cash receipts are forecast at nearly $143.5 billion in 2008, up 4 percent from 2007, due to surging export demand and a weaker dollar.

But costs to produce crops and livestock also rose to a record $292.5 billion, up $38.2 billion from last year.

Costs for feed, seeds, fertilizer, and fuels each rose by more than $3 billion from a year ago.

USDA also forecast farmers would get direct government payments of $12.5 billion in 2008, up from $11.9 billion in 2007.

Despite dimmer outlooks for 2009, it's unlikely that farm subsidies will jump because prices remain at historically strong levels, said Bruce Babcock, an economist at Iowa State University.

"The prices are still too strong for the farm support payments," Babcock said.

(Additional reporting by Roberta Rampton and Carey Gillam; Editing by Walter Bagley)