It likely comes as no surprise that farm incomes are set to decline in 2023 after hitting record levels in 2022. Still, the -22.8% year-over-year decline (approximately -$42 billion) currently projected by the USDA Economic Research Service (ERS) is a little hard to stomach. Accounting for inflation, the decline in net farm income from 2022 amounts to -$48 billion or -25.4%. Despite the hefty hit, USDA says net farm income in 2023 would still be +22.6% above its 20-year average (2003–22) of $115.2 billion in inflation-adjusted dollars.
The latest numbers come from the August 31 Farm Sector Income update. The new farm income forecast of $141.3 billion is actually higher than the $136.9 billion ERS initially forecast in February. ERS says net farm income, a broad measure of profits, reached $183.0 billion in calendar year 2022, also up from the February estimate of $162.7 billion. Based on the new estimate, net farm income in 2022 increased +$42.9 billion (+30.7 percent) from 2021 in nominal dollars.
Net cash farm income reached $202.2 billion in 2022, an increase of +$52.9 billion (+35.4%) from 2021. It is forecast to decrease by -$53.6 billion (-26.5%) from 2022 to $148.6 billion in 2023. In inflation-adjusted 2023 dollars, net cash farm income is forecast to decrease by -$60.5 billion (-28.9%) compared with the previous year. But as with net farm income, projected net cash farm income would remain above the 2003–22 average.
Despite income trending higher than historical averages, the US Senate Ag Committee recently pointed out that this year’s declines in both net farm income and net cash income are now projected to be the largest declines of all time. Even when adjusted for inflation the projected decline in net cash income in 2023 is the worst in history (down nearly $61 billion) and the decline in inflation-adjusted net farm income is the third-worst of all time (down $48 billion). The committee notes that given expectations for elevated production expenses alongside weakening crop and livestock prices, farm incomes are likely to be pressured even lower in 2024. Below are more highlights from the latest ERS Farm Sector Income Forecast:
Declines in Crop and Animal/Animal Product Receipts: Crop cash receipts are forecast at $267.0 billion in 2023, a decrease of -$11.2 billion (-4.0%) from 2022 in nominal terms. Combined receipts for corn, soybeans, and cotton are forecast to fall -$15.5 billion.
- Corn receipts are expected to fall by -$8.5 billion (-9.6%), because of lower expected prices in 2023.
- Soybean receipts are forecast to decrease by -$5.4 billion (-8.6%) in 2023, caused by lower expected prices and quantities.
- Cotton receipts are expected to decrease -$1.6 billion (-17%) as a result of lower forecasted prices and quantities for cotton lint
- Wheat receipts are forecast to decrease -$400 million (-3.1%), as lower prices will outweigh higher quantities sold.
- Hay are projected to increase +$700 million (+7.4%), based on expectations for both higher prices and quantities sold.
- Total animal/animal product cash receipts are expected to decrease -$11.9 billion (-4.6% in nominal terms) from 2022 to $246.6 billion in 2023.
- Cash receipts from cattle and calves are expected to increase +$15.3 billion (+17.8%), as growth in prices is expected to outweigh lower quantities sold.
- Hog receipts are expected to decrease -$3.0 billion (-9.8%) in 2023 as negative price effects are projected to outweigh higher quantities.
Lower Government Farm Payments: After reaching a record high of $45.6 billion in calendar year 2020, direct Government farm program payments decreased to $25.9 billion in 2021 and to $15.6 billion in 2022. They are forecast to fall further to $12.6 billion in 2023. The overall decrease from 2020 in direct Government farm program payments primarily reflects lower anticipated payments from supplemental and ad hoc disaster assistance, including lower Coronavirus (COVID-19) pandemic assistance.
- Supplemental and ad hoc disaster assistance payments in 2023 are forecast at $7.8 billion, a decrease of -$3.8 billion (-32.6%) from 2022, primarily because of lower payments from other (non-pandemic related) supplemental and ad hoc disaster assistance programs.
- Conservation payments from the financial assistance programs of USDA’s Farm Service Agency (FSA) and Natural Resources Conservation Service (NRCS) are expected to be $3.9 billion in 2023, up +$356.7 million (+10.1%) from the 2022 estimate.
- The Dairy Margin Coverage Program (DMC) is forecast to make $904.9 million in payments in 2023, which is up by +$777.8 million (+611.8%) compared with 2022.
- Farm bill commodity payments under the Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) programs are forecast to decline by -$329.9 million, or -88.6%, in 2023 to $42.6 million compared with $372.5 million in 2022. The decrease in 2023 is because of higher commodity prices for covered commodities in 2022 compared with 2021.
Climbing Production Expenses: Farm sector production expenses—including expenses associated with operator dwellings—are forecast to increase by +$29.5 billion (+6.9%) from 2022 to reach $458.0 billion in 2023. When adjusted for inflation, production expenses are forecast to increase by +3.3% from 2022 to 2023, remaining below the record-high level of 2014. Spending on feed, labor, and livestock/poultry purchases are forecast to represent the three largest categories of spending in 2023.
- Feed expenses, the largest single expense category, are forecast at $86.4 billion in 2023, increasing from the 2022 level by +3.2% in nominal terms, but declining -0.2% after being adjusted for inflation. While feed expenses are projected to be at a record level in nominal terms, they fall short of the record 2022 level when adjusted for inflation.
- Labor expenses (including noncash employee compensation) are forecast to rise by +$2.2 billion (+5.3%), reaching $44.1 billion in 2023. When adjusted for inflation, this forecast is the second highest on record, just below the record-high 2017 level of $44.3 billion.
- Livestock and poultry expense is projected to grow by +$7.6 billion (+22.0%) to $42.4 billion. Most of this forecasted growth is attributed to the projected increase in purchases of cattle and calves. When adjusted for inflation, this forecast is the second highest on record, just below the record-high of $44.2 billion in 1979.
- Interest expenses (including operator dwellings) are forecast to increase in nominal terms by +$9.2 billion (+38.1%) to $33.3 billion in 2023. This reflects expectations that the total debt levels and interest rates will rise in 2023. While in nominal terms this level is forecast to be the highest to date, it is much below the 1987 record of $58.5 billion in inflation-adjusted dollars.
- Fuel and oil expenses are projected to have the most significant decline in nominal terms at -$2.4 billion (-13.1%) to $16.1 billion in 2023. The 2023 forecast is driven in part by the U.S. Energy Information Agency’s forecast of lower diesel, gasoline, and natural gas prices in 2023.