After record-high profits for American farmers in 2022, farm expenses are expected to increase and farm income to decrease mildly throughout this year.
The Economic Research Service released its first “Farm Sector Income Forecast” report for the calendar year on Tuesday.
Net farm income, the full quota of overall farm profits, is projected at $136.9 billion compared to the $162.7 billion that farms received last year.
In the last two years, net cash income for farmers rose about 19% to the highest level on record, says Carrie Litkowski of the Economic Research Service. In 2023, net cash income, which includes cash receipts from farming, sales of commodities, or government payments, is forecasted to drop by 23% or $44.7 billion after adjusting for inflation.
“We saw back-to-back years of growth in net farm income,” says Litkowski. “This would put net farm income in 2022 at its highest since 1973.”
Despite these projected declines, analysts forecast that net farm and cash income measures will remain above their 10-year average.
Farmers will receive less for their goods
Crop and livestock farmers will see decreases in earnings as their production-associated expenses increase. Crop receipts are expected to fall by $8.9 billion. However, farmers are predicted to keep more crops in storage longer, resulting in crop production values increasing by $7.2 billion.
“Crop sales from inventories are expected to be very small in 2023 on net, much less than last year, which resulted in a negative inventory adjustment,” says Litkowski.
The reason for the decline in cash earnings is the lower prices that farmers will receive for their commodities. It’s quite the shift after last year, where all significant crops saw an 11% increase in receipts. Corn and soybeans and specialty crops, such as cotton and fruit, are projected to fall due to price changes.
Wheat receipts may rise, but that is marginal – 4% higher than last year. That is because USDA saw an increase in wheat plantings in the previous year and expects a significant increase in quantity.
“That increase is not expected to be enough to offset the expected declines in other cash receipts,” Litkowski says.
Livestock receipts are expected to fall by $14.7 billion. Dairy and dairy businesses will see the most significant decline. A drop in milk prices will trickle down, leaving farmers $8.4 billion less in milk revenue. Most dairies’ total net cash farm income is also forecasted to drop by 40%.
“This is after a large forecast increase in 2022,” says Litkowski.
Egg prices are expected to drop by 24%. Farmers with layer hens saw prices soar last year due to avian influenza.
Production input costs will climb
Production expenses are projected to increase by 4%, an increase of $18.2 billion, and government payments, such as crop insurance and dairy margin coverage, will decrease by 5%. In 2020 during the pandemic, American farmers saw a record $45.6 billion in government payments, but the revenues have declined each following year. Pandemic assistance is projected to be about $983.5 million in 2023. Since 2014, this year could be the lowest farmers will see with aid, say analysts.
Production costs incurred by farmers will steadily increase throughout the year. In 2022, analysts estimate that total expenses for American farms were about 19% higher compared to past years. As 2023 rolls along, farmers could see a 4% increase in total expenses, which is still below the record high from 2014, says Litkowski.
“This is also still way below some of the peaks we saw during the 1980s financial farm crisis,” she says.
However, there will be minimal declines in costs associated with feed, rent, fuel, and fertilizer. As a result, fuel and oil is forecast to fall by 14.9%, with retail diesel prices dropping to 80 cents per gallon, according to the Energy Information Agency.
Despite the projected lower incomes for farms, a farm’s equity values will continue to grow. Before the pandemic, farm sector equity had gradually increased by 14% in the last four years. Farm real estate values are the main driver for the increase and will continue to grow into 2023 by 3% to 5%, Litkowski says.
More farms will be supported by off-farm income
The health of the American farm household could see a marginal total increase of $96,715 or 2% for the year. Of the 2 million American farms, 98% are family farms, with 5 million people claiming a farm as their residence. Half of those farms are classified as residential farms, as these are smaller farms and the prime occupations are non-farming related.
“Many households rely on or primarily survive on off-farm income,” Litkowski says. The median total of off-farm income is projected to have grown in the last two years, and the growth will remain stable throughout this year.
Only a small portion of American farming households brand themselves as commercial farms, meaning their income is derived from farm sales. As a result, the USDA is projecting that these farms could see a 16% decrease in the total median household income due to lower prices the farmers will receive for their goods.