U.S. farmers are heading for their most profitable year on record despite the worst drought in half a century as high grain prices and payouts from a federal crop insurance program compensate for a smaller harvest.

Net farm income will reach $122.2 billion in 2012, the highest-ever nominal profit and the second highest in inflation-adjusted terms after 1973, the U.S. Department of Agriculture(USDA) said in its first forecast since drought spread across the corn belt.