Higher crop prices will help offset much smaller drought-affected crop yields in Missouri, according to “Missouri Farm Income Outlook 2012.”

“Drought impact on livestock producers will bring more harm – and last longer,” says University of Missouri ag economist Scott Brown, who authored the report with research associate Daniel Madison.

“Many beef and dairy producers will liquidate part of their inventory to combat high feed prices. Some will sell animals to get through the winter,” he says. “There is simply not enough hay to feed them.”

Missouri beef-cow numbers are expected to decline for the seventh consecutive year in 2013. Likewise, the Missouri dairy industry will continue a long-term contraction.

“Most meat and milk prices will go higher, but there will be a lag,” Brown says. As herds are sold, more meat becomes available. Livestock farmers face multi-year production cycles, from breeding to marketing.

“The relative profitability advantage enjoyed by crop producers since 2008 is expected to persist through next year,” he says.

Projected net farm income looks to drop in 2012 to almost $2.8 billion after a 2011 record-setting net of $3.33 billion. It will likely bounce back in 2013 to $4 billion, assuming normal weather and trend-line yields.

The economists used yields from USDA’s September Crop Production report. Missouri yields are down more than U.S. yields.

Corn prices in the 2012-13 market year are estimated to top $8/bu, up from near $6.50 for 2011. Soybean prices are estimated to be $16/bu for 2012-13, up from $12.45/bu last year.

Fall-planted wheat missed most drought damage. Yields were the highest since 2003, bringing the best cash receipts since 1989.

Crop receipts for 2012 are projected at $5.5 billion out of a Missouri farm receipts total of $9.95 billion.

If farm receipts boom in 2013, Brown urges caution. Expenses will jump by almost 70% relative to 2004. “Average returns increase for most producers, but risks continue to grow.”

Inventory adjustments will play a big role in the change from 2012 to 2013. “Short crop years tend to have a large negative inventory adjustment to totals,” Brown says. “Bumper crops have a large positive figure.”

While 2012 has been challenging, Brown says, no long-lasting downturn is expected.

“Perhaps the largest lasting effect will be reductions in the cattle industry,” he says. “A lot depends on weather.” Fall rains can grow grass that will offset need for winter hay.