After two record-setting years in a row, U.S. net farm income will decline sharply in the near term, pulled down by lower crop and livestock prices, though it will remain well above its 10-year average, said FAPRI on Wednesday. The University of Missouri think tank said food inflation would drop to 4.4% this year — less than half of last year’s rate — and run at 2% in following years.
“What goes up generally comes back down in agricultural markets,” said Pat Westhoff, director of the Food and Agricultural Policy Research Institute. “Projected prices for more crops, poultry, and dairy products all retreat in 2023 from recent peaks, and so do some production expenses.”
FAPRI’s projections assumed a return to normal weather and yields, which would calm markets that were jolted in 2022 by the Russian invasion of Ukraine, smaller-than-expected U.S. crops, and a global outbreak of bird flu.
With Congress due to overhaul U.S. farm and food policy this year, FAPRI estimated that crop insurance and farm subsidies, the two major streams of federal support to agriculture, would cost nearly $77 billion over the next five years, or roughly $15 billion a year. Crop insurance would account for the bulk of the spending, with outlays of more than $11 billion annually. The government pays 62 cents of each $1 in premiums for crop insurance policies.
When other USDA spending, particularly for land stewardship, is included, net government outlays on agriculture would run between $22 billion and $29 billion annually over the next five years, the usual life of a farm bill.
Farm groups have pushed for a stronger farm safety net — most commonly for higher reference prices, used in calculating subsidies — and an expanded crop insurance program.
FAPRI said net farm income would fall 22% this year from the record $168.7 billion of 2022, steeper than the USDA’s estimate of a 16% drop. Income would fall again in 2024, by 14%, and then be fairly steady for rest of the decade, it said. The 10-year average for net farm income was $99 billion annually, according to USDA data.
Farm production expenses, after setting a record in 2022, will rise 2.5% this year, estimated the think tank. “Lower prices for some inputs result in a reduction in production costs in 2024 and 2025,” it said.
“If weather conditions allow crop yields to return to trend line levels in 2023, prices for corn, soybeans, wheat, cotton, and many other crops are likely to fall,” said the FAPRI baseline.
After the food inflation rate of 9.9% in 2022, “price increases have slowed in recent months, and the projected annual increase in consumer food prices is 4.4% in 2023 and under 2% in 2024,” said the report.
The FAPRI report, “U.S. agricultural market outlook,” is available here.