High cash grain prices, weather, low interest rates, exports and a complex set of related issues are all going to affect farmers in the coming year.
Mike Pearson, host the Iowa Public Television program "Market to Market," was in Wisconsin Monday and Tuesday as the featured presenter at farm workshops sponsored by Landmark Services Cooperative.
As he looks ahead at what's driving agriculture in the coming year he's very bullish on American agriculture, especially as he looks at world demand for the products produced here.
As farmers look back at 2012 they tell him that they are glad to see it over. "It was a long year. By and large it ended up okay, but it was a rough year and they are glad to see it in their rearview mirror."
In Western Corn Belt states where the drought began first, water restrictions were put in place and that's an issue that will intensify unless rains return to more normal levels.
As the drought widened, commodity prices were driven up to record or near-record highs. The drought and demand for corn, combined with new all-time lows for interest rates, have driven land rents and farmland prices ever higher
Economists are saying that it doesn't look like farmers are heading for a land price bubble as they did in the late 1970s and early 1980s, Pearson said. "Farmers today are buying land with cash, not on borrowed money as they did in that earlier era."
The fact that farmers have had a couple of good years and are perceived as "rich farmers" who don't need the help of federal programs, could make negotiations on a new farm bill complicated, he said.
"As consumers pay higher prices for beef and other food in the grocery store and then hear about a $500 billion farm bill there may be some pushback on that - some cognitive dissonance.
"Your best tool to counter that is to talk about agriculture one-on-one with people; bring them out to the farm. Show them what agriculture is and explain what you do.
"Ninety-eight percent of Americans have no connection with agriculture except to buy food."
The U.S. Department of Agriculture predicts food inflation will be up three-four percent in 2013, led by higher beef prices. Those are impacted by the drought-induced higher feed costs, a shrinking beef herd and by a smaller supply of meat.
Retail beef prices are up at least five percent based on tight supplies, he said, and packers have been soaking up some of the losses, but won't be willing to continue doing that. This will have the inevitable consequence of higher prices for beef and other meat products.
As 2013 unfolds farmers are looking at consequences of last year's drought and its potentially lingering effects. While soil moisture levels are considered to be returning to normal in the eastern part of the Corn Belt, that isn't the case in western states.
There, where many corn fields are irrigated, he said, the drought has put farmers at odds with other water users and raised questions about water restrictions and who has the right to use water.
Last year's drought will put agriculture in the spotlight, and that will be intensified if drought conditions continue this year.
The fact that Congress didn't pass a new farm bill last session - only extending the old five-year bill for nine months - means that support for agriculture will be put to the test in the coming year.
Pearson said the National Oceanic and Atmospheric Agency (NOAA) is not predicting a lot of changes in the current weather patterns.
A "wavering" El Nino pattern adds uncertainty to the winter outlook for the Midwest and the Northeast.
NOAA predicts a drier-than-average spring in the U.S. heartland based on the fact that a more intense El Nino is not considered likely. Every couple of weeks NOAA makes substantial revisions to its predictions, he said, so he urged farmers to remember that the prognostications could change.
Pearson said the market experts he talks to are bullish on corn prices for the coming year but prices are in a holding pattern right now. That will probably continue unless moisture levels change substantially in the near term.
The corn market dropped sharply in December but that was attributed to fund money exiting the market as the fiscal cliff approached, he said, and investors worried about what was going to happen to their money.
Food, seed and industrial uses of corn have stayed remarkably constant over the last few decades, he told his De Forest audience Monday. However, changes in the amount of corn used for ethanol production and feed have been dramatic.
Since 2004-05 the amount of corn used for feed has been on a downward trend. According to a USDA chart Pearson showed, that level is about the same as it was in 1980-81. Ethanol production has taken up the slack.
"Ethanol soaks up what had traditionally been used for livestock."
Part of what's driving that dynamic is smaller per capita meat consumption in the United States, he said. In the early 1960s per-capita meat consumption was about 97 pounds per person per year.
Today it's about 57 pounds. "We eat less meat as a people."
In the beef sector herd liquidations continue. Production dropped 1.1 percent in 2012 and is expected to decline 4.5 percent in 2013.
One of the big questions will be "what are consumers willing to pay?" he said, as boxed beef prices pushed toward $200 last October and retail prices are expected to increase dramatically in the coming months.
"Will consumers pay it? How high can we go?"
While the beef market struggles and feeder prices tumble as corn prices rise, pork has its largest market share in 20 years. Hog prices have been trending up and producers have recently seen their highest prices in the last ten years.
A bumper crop this coming year could be one of the results of this past year's drought and tiny carryover number. "The cure for high prices is high prices," as the saying goes.
High prices will entice farmers to plant more corn in 2013 and many private market services are predicting record acreage numbers. Informa, he said, estimates corn acreage will be 99.03 million acres in the coming year - 2.13 million acres more than in 2012.
"More ground in production means the supply will ramp up and we will get out of the demand paradigm."
Marginal ground, land coming out of the Conservation Reserve Program and pastureland will likely be called into production for corn. If those numbers bear out, it would be an all-time corn acreage record.
In southern Iowa, where Pearson lives, there is a lot of hilly country that has been in "pastures forever" but will grow corn this year. High prices for the cash grain will continue to encourage farmers to convert that land to corn production.
"The acreage migration will continue as long as these record-high prices continue."
The coming year will be a volatile one for prices and Pearson encouraged farmers to protect their profits when possible and keep an eye on the weather, which will be the key factor affecting prices.
Any kind of dry weather will drive the markets and he encouraged farmers to sell incrementally on any kind of news about moisture.
In the soybean crop there is a lot of concern about moisture levels in South America where some regions have had too much rain and others have had not enough. Soybeans will fight to maintain acres in production as U.S. farmers turn their attention to corn.
If U.S. soybean acreage grows, it will be at the expense of cotton, Pearson said.
The markets are expecting to see a record crop out of South America and exports of U.S. beans will taper off as this South American crop comes out of the field. Without some significant weather issues, he sees bearish pressure on soybean prices.
"On the upside there is great demand for American beans around the world."
Informa predicts U.S. acreage planted to soybeans will be 78.96 million acres - up 1.76 million from 2012. That means a large crop from South America and rising U.S. acreage will likely bring lower prices.
One trend Pearson highlighted was international growth - in population and in demand for better food products.
"There are more people around the world and more people have a little bit more money. When they have money they choose to spend more of it on better products."
Americans spend only 6 percent of their money on food but in many other countries 25 percent is a minimum figure, he said. "In Africa that number goes up exponentially."
Pearson said that a person who's belly is half full has some problems. "But a man whose belly is empty has one problem."