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On February 7, the USDA Economic Research Service (ERS) released its latest "Farm Sector Income & Finances" report with 2022 updated estimates and a 2023 forecast.
The report is published three times a year, with a primary assessment in February to update the previous year’s estimates followed by updated publications in August and December to reflect evolving conditions throughout the year. About two million farms participate in the data program.
Read on for a closer look at the insights shared in the latest report and how they may impact your ag operation.
The charts below summarize the main cash flows for each year.
Illustrating the positive flow from different activities and the negative flows from costs, the charts below outline final net cash income. Comparing the 2022 and 2023 chart variations highlights the differences in the main categories between years, while also indicating how net cash income is built by starting from income and subtracting all the cash flows that represent costs.
One of the biggest highlights of the report was a record high net cash farm income for 2022, which reached $189.9 billion. This achievement was mainly driven by higher prices for many major ag products, including corn, soy, dairy, and meat, according to the ERS. Production expenses were also higher, but were offset by higher revenue.
Looking forward to 2023, the forecast estimates that net cash income will decrease to $150.5 billion, down 20.7% relative to 2022 in nominal dollars. This is expected to be driven by lower revenue, which is expected to decline by 4.3% in aggregate.
While the USDA expects an increase in crop sale quantities, lower anticipated prices will offset this trend. Importantly, despite being slightly lower, crop receipts are still high in historical terms, with 2023 soybean and corn receipts being the second and third highest since 2002.
For livestock, both quantity and prices are expected to decline. The largest dollar decline is expected for dairy and broilers, with cattle and calves staying high, close to their highest levels in recent years.
Another indicator of lower net cash income is higher expenses, which are expected to rise 4.1% compared to 2022. When adjusted by inflation, such an increase is only 1% and the adjusted value is below the record high in 2014. Interest, livestock/poultry purchases, labor, property taxes, and seed and pesticide prices are expected to increase, while fertilizer prices, feed costs, net rent, and fuel prices are expected to decrease.
Inflation adjustment uses the US Bureau of Economic Analysis Gross Domestic Product Price Index (BEA API series code: A191RG). Inflation is forecast at 2.8% in 2023.
When looking at the big picture, the chart above shows that while 2023 net cash income is forecast to decline, it is still high compared to historical averages. Even when adjusted for inflation, net cash income has remained high over the last three years.
This recent higher income has had a positive effect on the farm economy, increasing farmers' savings and promoting land acquisitions. This spike in land purchasing has pressured farmland prices, translating into an increase in farmers' equity from 2019 to 2023. Additionally, the bankruptcy rate during 2022 was less than one farm bankruptcy per 10,000 farms and had been trending down since 2019.
However, it is worth noting that debt also increased. Solvency ratios, which measure the capacity of the sector to repay loans and obligations through the sale of assets, are expected to worsen slightly in 2023.
Interested in taking advantage of the positive farm sector financial outlook by expanding your ag operation? FBN Finance has a wide range of available financing options to help you purchase additional farm land, buy new farm equipment or expand your spending power. Connect with a financial advisor today by clicking here, completing the form below or calling 866-619-3080.
US Department of Agriculture, Economic Research Service. Farm Sector Income & Finances: Farm Sector Income Forecast, February 7, 2023.
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