American farmers are entering 2023 in a strong financial position, but the squeeze is getting tighter, says one lender.
This morning AgAmerica released the 2023 Farm Forecast, a report on the financial status of farmers coming out of 2022 and what to expect in 2023. The report analyzed a variety of indicators, including commodity prices, input costs, and domestic and international supply and demand factors.
The lender found net farm income rose nearly 14% in 2022 but input costs rose nearly 19%. Farm equity went up over 10% last year, due in part to the increase in farm assets, including land.
Looking ahead, there are several things AgAmerica says pose a risk to farmers in 2023, including the looming threat of a recession, rising interest rates, and the diesel fuel shortage.
“The good news is that the farm balance sheet is still expected to stay strong this year, despite anticipated slower growth in equity,” says the report. “The bad news is we anticipate the downward trend in liquidity in 2022 to continue into 2023.”
Data from the report shows commodity prices were notably high across the board in 2022.
AgAmerica is projecting by the end of 2023 several commodities will see prices soften, including corn, soybeans, wheat, hogs, and poultry.
Cattle prices, however, are expected to rise.
“The number of beef cows is expected to decline an estimated 5% in 2023, while the inventory of cattle and calves is expected to decline by 3%,” the report says. “Prices for fed cattle, on the other hand, are expected to increase by 5% while feeder prices are expected to rise by 10% in 2023.”
AgAmerica has several recommendations to help farmers protect themselves from the risk 2023 may bring.
“Higher market risk associated with softening farm commodity prices and rising farm input costs may create more financial risk for farmers and ranchers in 2023,” the report says.
The report has four “pro tips.”
Don’t wait too long to sell grain.
“With interest rates on the rise, the opportunity cost of holding commodities in storage rises along with it,” the report says.
Lock in input costs early.
“Forward contracting of seed, chemicals, fuel, and feed acquisitions can be used to avoid unwanted surprises,” the report says.
“Cash is king when profit margins shrink…Liquidity also provides flexibility in negotiating prices for inputs,” the report says.
Carefully consider investment decisions.
“Plans for expansion of existing operations in the coming year should be analyzed in a ‘What if’ context,” the report says. “In times of increasing farm financial stress, noncurrent farm assets can become very illiquid.”
Learn more about the report here.