U.S. Farmers Reaping Record Profits

Media reports have been focusing on the drought afflicting much of the United States and the devastating impact it could have on farmers. But surprisingly, American farmers are heading for their most profitable year on record.

The reason: High grain prices and payouts from a federal crop insurance program will compensate for a smaller harvest, the Financial Times reports.

Net farm income will top $122 billion in 2012, the highest-ever profit and the second highest in inflation-adjusted terms since 1973, according to a report from the U.S. Department of Agriculture.

That’s a 4 percent rise in average farm profits from 2011, even as 60 percent of the contiguous United States was suffering from a moderate or extreme drought in mid-August.

The American corn and soybean crops have been ravaged by the drought, pushing prices to all-time highs. That means farmers in northern plains states that escaped the worst conditions will earn 39 percent more this year.

“Essentially you have a situation where the increase in prices offsets the reduction in the quantity produced and sold during the year,” said Mitch Morehart, a USDA economist. The USDA also reported that “insurance indemnities are forecast to offset the impacts of declining yields associated with the drought.”

Insurance claims will amount to an estimated $30 billion this year, with the U.S. government responsible for about $14 billion, according to the Times.

Livestock farmers will not do so well, since they are generally unable to buy crop insurance and will have to shoulder high feed prices.