Revised USDA Farm Income Forecast Sends Positive Signal on Farm Economy

The USDA’s most recent Farm Industry Income Forecast, released Dec. 1, projects an increase in net farm income for 2022. U.S. net farm income, a broad measure of farm profitability, is currently forecast to increase 13.8% to $160.5 billion, or $19.5 billion. From $140.4 billion in 2021. This contrasts with both the USDA’s original February estimates, which projected a $5.4 billion (-4.5%) decrease in net farm income, and the USDA’s September estimates, which projected a mere $7.3 billion (5.3%) increase. Adjusted for inflation, 2022 net farm income is expected to increase by $10.7 billion (7.2%) from 2021, the highest since 1973. That’s just over 53% of the inflation-adjusted 20-year average of $104 billion. dollar. The report also finds the largest increase in production costs, both numerically and by percentage, with an increase of nearly $70 billion (18.8%) across the farm economy.

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It is worth noting the wide variability in individual farmer net returns in 2022. The volatile markets meant that a farmer’s choice to record his fertilizer purchases or crop sales, for example, could have a major impact on his bottom line. In addition, drought and natural disasters place special pressure on many producers regionally. Ever-changing federal, state and local laws, including labor and protection requirements, present complex corporate risks that farmers must navigate. Individual and localized farm operating challenges must be considered to measure the health of the broader farm economy.

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Net Farm Income Distribution

Direct government payments are projected to decrease by $9.4 billion, or 36.3%, between 2021 and 2022. That’s below September’s estimate of $12.8 billion, or a 50% decline. As shown in Figure 2, the decline corresponds to reductions in both USDA pandemic assistance, which includes payments from Coronavirus Food Aid Programs and other pandemic assistance to producers, and non-USDA pandemic assistance programs, such as funds from the Small Business Administration Paycheck. Conservation Program.

From 2021 to 2022, federal payments through USDA’s pandemic relief initiatives will fall by $6.3 billion, from $7.5 billion to $1.2 billion, or 83%, and non-USDA pandemic aid will fall by 2021. It is expected to disappear completely with a difference of $8.47 billion from . The Market Facilitation Program, which provides a series of direct payments to farmers and ranchers affected by trade retaliation, in addition to reduced pandemic-related payments, ended in 2021 and will no longer be a part of net farm income. The “Other supplemental and ad hoc disaster assistance” category includes payments from the Wildfire and Hurricane Compensation Program (WHIP+), the Quality Loss Correction Program, and other farm billed disaster programs. Recently, this includes the Emergency Assistance Program (ERP), which replaced WHIP+ for 2020 and 2021 disaster-related crop losses and paid manufacturers over $7.1 billion in Phase 1 as of the end of November. Activity under this program pushed payments in the ad hoc aid category from the initial February estimate of $2.9 billion to $10.7 billion – an increase of 264 percent – ​​the main reason for a smaller decline in government-related payments. The recent announcement of ERP Phase 2 and the new Pandemic Relief Revenue Program, aimed at further assisting producers in 2020 whose revenues have fallen due to the COVID-19 pandemic, will likely increase future federal payments to producers. In Figure 2, total commodity insurance claims triggered in the event of loss of income or yield for growers who purchase crop insurance are not direct government payments and are included for comparison. Commodity insurance claims are expected to increase 80%, or $9 billion, from $11.2 billion to $20.2 billion in 2022. This increase is likely the result of increased crop insurance enrollment for those receiving WHIP+ payments and required under requirements to purchase crop insurance or Uninsured Crop Disaster Assistance Program coverage (when crop insurance is not available) for the next two current crop years. Necessity of ERP too.

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farming

Most of the increase in net farm income is due to the projected increase in cash income from livestock due to higher prices. The value of livestock production (in nominal dollars) is expected to increase by about 31%, or $60.2 billion, in 2022. Chicken eggs, broilers and milk accounted for the largest percentage increases, with chicken egg cash revenues expected to increase by $10. billion or 115%. Highly Pathogenic Avian Influenza (HPAI) has affected over 52 million birds in commercial flocks in the US, with more than 43 million layers raising oppressive supplies and prices.

Cash revenues for cattle and calves are forecast to increase by $13.9 billion, or 19%. Drought conditions in the Western and Southern Plains have damaged rangelands and increased the cost of feed such as hay. This resulted in many farmers marketing heifers that would typically be kept for breeding and herd replacement. The heifer slaughter now leaves 2021 with 464,000 heads. This has resulted in a reduction in the US cattle inventory that will continue for years to come. The tight cattle supply pushed up both cash and futures prices, resulting in growth in cash revenues.

crops

Higher projected commodity prices generally led to higher cash revenues. Corn yields are expected to increase by 27.6% ($19.6 billion), soybeans by 29.5% ($14.5 billion) and wheat by 23.7% ($2.8 billion). These three products make up the bulk of cash revenue growth projections. While 91.6% of the increase in cash revenues is expected to be due to higher prices, only 6.4% is due to volume changes. Still, there is a lot of uncertainty in the market. Issues such as Mexico’s commitment to ban GM maize for human consumption, low Mississippi River levels and weather in South America could lead to market volatility and price declines that are not covered in these forecasts. Additionally, some of these increases in commodity prices can still be attributed to the ongoing Ukraine-Russia conflict.

On the cost side, manufacturing expenses, including operator housing expenses, are forecast to increase by $69.9 billion, or 18.8%, to reach $442 billion in 2022. This includes increases in costs such as cumulative feed, which is expected to increase approximately $11.3 billion, or 17.4%, to $76.6 billion, and represents the single largest expense category. Fertilizer, lime and soil conditioner costs are expected to increase $13.9 billion, or 47%, from $29.5 billion to $43.4 billion. Typically, fertilizers account for about 15% of a crop farmer’s costs, and an increase of this magnitude can be overwhelming for some producers, despite the increase in income. Other increased production costs in the finished inputs category included pesticides, which are expected to increase by $6.3 billion, or 35%, from $17.8 billion to $24.1 billion, and by $20.5 billion, up 47.7%, or $6.6 billion. It includes fuels and oils that are expected to reach billions of dollars. . Farmers and ranchers face the same challenges as other Americans when it comes to the cost of electricity for producers, which is expected to increase from about $6.4 billion to about $7 billion by $594 million (9.3%). Interest expenses (including operator housing) are expected to increase by 41% from $19.4 billion to $27.4 billion.

Other farm income, which includes things like private labor, machinery rental, commodity insurance compensation, and rent received by operator landlords, is projected to increase $9.7 billion, or 30%, from $32 billion to $42 billion in 2022. When factors are taken into account, the resulting expectations for net farm income become clear, as shown in Figure 3.

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Other Considerations

The USDA’s Farm Industry Income Forecast also provides expectations of farm financial indicators that can give an idea of ​​the overall financial health of the farm economy. Through 2022, U.S. agriculture sector debt is expected to grow in nominal terms by $27.7 billion, or about 5.9%, to a record $501.8 billion. Adjusted for inflation, the increase translates into a 0.4% reduction in agricultural sector debt. About 69% of farm debt is in the form of real estate debt for the land to grow crops and keep livestock. Real estate debt is forecast to increase by $23.5 billion to reach $347.8 billion, largely due to the increase in land values ​​nationwide. Non-real estate debt, or debt for the purchase of things like equipment, machinery, feed and livestock, is expected to rise only slightly to $154.1 billion. Debt-bought assets are rising in value on a regular basis, meaning that it will continue to be important for farmers and ranchers to pay off their debts and meet their interest in order to maintain a healthy balance sheet.

Inflation, which currently hovers around 8% per year, is another item to consider when assessing net farm income growth. Inflation is both the general rise in prices and the fall in the purchase value of money. So while farmers are facing growth in net income, that income doesn’t go that far. The Federal Reserve is trying to address inflation with a series of base rate hikes. This has several consequences, including an increased cost of debt. Farmers will double or triple their interest rates over the past few years, making it more costly to borrow working capital. This can particularly affect new or novice farmers looking to purchase farmland and equipment.

Summary

The USDA has released the latest estimates for 2022 net farm income, providing an end-of-year forecast for the farm’s financial picture. For 2022, the USDA estimates that net farm income will increase 13.8% from $141 billion in 2021 to $160.5 billion. Most of the 2022 net farm income is expected to come from crop and livestock cash revenues, a record increase in production costs and a reduction in interim government support, resulting in an overall increase in estimated net farm income. Despite the increase in net farm income, farmers and ranchers still face a fierce battle. One of the biggest concerns is rising operating costs, especially in fertilizers, energy and other inputs. Growing barriers to access to credit and the rising cost of financing farming operations create uncertainty for producers looking to the next production year. Inflation and weather uncertainty are also worrying. These issues will challenge the ability of farmers and ranchers to rise above breakeven levels.



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