The USDA’s latest farm 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 at $160.5 billion, an increase of 13 .8%, or $19.5 billion, from $140.4 billion in 2021. This contrasts both with the USDA’s original February estimates, which forecast a decline of $5.4 billion (-4.5%) in net farm income so with USDA’s September estimates predicting an increase of only $7.3 billion (5.3%). Adjusted for inflation, net farm income in 2022 is expected to increase by $10.7 billion (7.2%) from 2021 and be the highest level since 1973. This is slightly more than 53% above the 20-year average $104 billion adjusted for inflation. dollars. The report also finds the largest increase in production costs on record in both numerical and percentage terms, up nearly $70 billion across the farm economy (18.8%).
It is worth noting the wide variation in individual farmers’ net returns in 2022. Volatile markets meant that when a farmer decided to book a purchase of fertilizer or, for example, a sale of crops, it could have a large impact on his bottom line. Additionally, drought and natural disasters place regional stress on many producers. Constantly changing federal, state and local laws, including labor and safety requirements, present complex institutional risks that farmers must manage. In order to measure the health of the wider farm economy, individual and localized problems associated with the operation of the farm must be taken into account.
Breakdown of net agricultural income
Direct government payments are projected to decrease by $9.4 billion, or 36.3%, between 2021 and 2022. That’s down from the $12.8 billion, or 50%, decline forecast in September. As shown in Figure 2, the decrease corresponds to reductions in USDA pandemic assistance, which included payments from the Coronavirus food assistance programs and other pandemic assistance to producers, and non-USDA pandemic assistance programs such as Small Business Administration payout funds. Protection program.
From 2021 to 2022, federal payments through USDA pandemic relief initiatives are expected to decrease by $6.3 billion, from $7.5 billion to $1.2 billion, or 83%, and pandemic non-USDA aid will disappear entirely, an $8.47 billion difference from 2021. In addition to reduced pandemic-related payments, the Market Facilitation Program, which provided a number of direct payments to farmers and ranchers affected by trade retaliation, ended in 2021 and will not be part of net farm income until future. The category “other supplemental and ad hoc disaster assistance” includes payments from the Wildfire and Hurricane Indemnity Program (WHIP+), the Quality Loss Adjustment Program, and other disaster programs. Most recently, this includes the Emergency Assistance Program (ERP), which replaced WHIP+ for 2020 and 2021 crop losses caused by disasters and paid out more than $7.1 billion to producers in Phase 1 as of the end of November. Activity under this program pushed ad hoc aid payments from the original February projection of $2.9 billion to $10.7 billion—a 264% increase, the primary reason for the smaller decline in government-related payments. The recent announcement of ERP Phase 2 and the new Pandemic Assistance Revenue Program, which aims to further assist producers who experienced a decrease in revenue in 2020 due to the COVID-19 pandemic, will likely increase future federal payments to producers. In Figure 2, the total compensation for commodity insurance that is triggered in the event of a loss of income or yield to growers who have purchased crop insurance is not a direct government payment, but is included for comparison. Commodity insurance claims are expected to grow 80%, or $9 billion, from $11.2 billion to $20.2 billion in 2022. This increase is likely due to increased enrollment in crop insurance by those who received the WHIP+ payment and who must purchase crop insurance or NonInsured Crop Disaster Assistance Program coverage (if crop insurance is not available) for the next two available crop years as required—and also an ERP requirement.
Farm animals
Most of the increase in net farm income is tied to a projected jump in cash income from livestock due to higher prices. The value of livestock production (in nominal dollars) is expected to grow by nearly 31% in 2022, or $60.2 billion. Chicken eggs, broilers and milk are responsible for the largest percentage increase, with cash receipts for chicken eggs expected to increase by $10 billion, or 115%. Highly pathogenic avian influenza (HPAI) has affected more than 52 million birds in U.S. commercial flocks, including more than 43 million layers, squeezing supplies and pushing up prices.
Cash receipts for cattle and calves are estimated to increase by $13.9 billion, or 19%. Drought in the western and southern plains has damaged pastures and led to higher costs for feed such as hay. This has resulted in many farmers marketing heifers that would normally be bred for breeding and herd replacement. The slaughter of heifers currently exceeds 2021 by 464,000. This has led to a reduction in US cattle stocks that will continue for years to come. Tighter cattle supplies pulled both cash and futures prices higher, leading cash incomes to rise.
Crops
Higher forecasted commodity prices generally translated into higher cash receipts. Corn sales are expected to rise 27.6% ($19.6 billion), while soybeans are expected to rise 29.5% ($14.5 billion) and wheat is expected to rise 23.7% ($2.8 billion). These three crops account for most of the projected increases in cash receipts. A whopping 91.6% of the increase in cash receipts is expected to be associated with higher prices versus only 6.4% associated with changes in volume. Still, there is a lot of uncertainty in the market. Issues such as Mexico’s commitment to ban GMO corn for human consumption, low levels of the Mississippi River and weather in South America could lead to market volatility and price declines that are not captured in these estimates. Additionally, some of this increase in commodity prices can still be attributed to the ongoing Ukraine-Russia conflict.
On the cost side, production costs, including operator housing costs, are projected to increase by $69.9 billion, or 18.8%, to reach $442 billion in 2022, a record high overall and a record high in both dollar and percentage terms increase in one year. This includes increases in costs such as cumulative feed, which is expected to rise nearly $11.3 billion, or 17.4%, to $76.6 billion and is the largest single category of spending. Fertilizer, lime and soil conditioner costs are expected to increase by $13.9 billion, or 47%, from $29.5 billion to $43.4 billion. Fertilizers typically account for about 15% of a crop grower’s costs, and an increase of that magnitude can be overwhelming for some producers, even with increased income. Other increased production costs in the manufactured inputs category include pesticides, expected to increase by $6.3 billion, or 35%, from $17.8 billion to $24.1 billion, and fuels and oils, expected to increase by 47 .7%, or $6.6 billion, from $13.9 billion to $20.5 billion. . Farmers and ranchers face the same challenges as other Americans when it comes to electricity costs, which are expected to increase by $594 million (9.3%) for manufacturers, from nearly $6.4 billion to nearly $7 billion. Interest costs (including operator housing) are forecast to rise 41% from $19.4 billion to $27.4 billion
Other farm income, which includes things like contract labor income, machinery rental, commodity insurance indemnities and rents received by lessor operators, is projected to increase by $9.7 billion, or 30%, in 2022, from $32 billion to 42 billion USD. Taking the factors into account, the resulting net farm income expectations become apparent, as shown in Figure 3.
Other considerations
The USDA Farm Sector Income Forecast also provides expectations of farm financial indicators that can provide insight into the overall financial health of the farm economy. During 2022, US agricultural sector debt is expected to increase in nominal terms by $27.7 billion, or nearly 5.9%, to a record $501.8 billion. Adjusted for inflation, the increase turns into a 0.4% decrease in agricultural sector debt. Almost 69% of farm debt is in the form of debt on real estate, crop and livestock land. Real estate debt is expected to rise by $23.5 billion to a record $347.8 billion, largely due to increases in land values ​​across the country. Non-real estate debt, or debt for purchases of things like equipment, machinery, feed and livestock, is projected to increase only slightly to $154.1 billion. Assets regularly bought with debt are rising in value, meaning it will continue to be important for farmers and ranchers to pay down debt and cover interest to maintain a healthy balance sheet.
Inflation, currently at around 8% per year, is another item to consider when evaluating the increase in net farm income. Inflation is both a general increase in prices and a decrease in the purchasing value of money. So while farmers face an increase in net income, that income doesn’t go as far. The Federal Reserve Bank is trying to tackle inflation with a series of hikes in key interest rates. This has several consequences, including increasing the cost of debt. Farmers will face interest rates double or triple what they have been in the last few years, making it more expensive to borrow working capital. This can especially affect new or beginning farmers who want to buy farmland and equipment.
summary
The USDA released its latest 2022 Net Farm Income Estimates, which provide an estimate of the farm’s financial picture at the end of the year. For 2022, the USDA expects net farm income to increase from $141 billion in 2021 to $160.5 billion, an increase of 13.8%. A large portion of net farm income in 2022 is expected to be produced by cash income from crops and livestock, record increases in production costs and reductions in ad hoc government support, leading to an overall increase in projected net farm income. Despite the increase in net farm income, farmers and ranchers still face an uphill battle. One of the biggest concerns is the increase in operating costs, especially fertilizers, energy and other inputs. Growing barriers to access to credit and rising costs of financing farm operations create uncertainty for producers looking ahead to next year’s production. Inflation and weather uncertainty are also a concern. These issues will challenge the ability of farmers and ranchers to break even.
