Earlier this year, USDA’s Economic Research Service (ERS) published the farm sector income forecast projecting a decline in net farm income for 2024 following record highs in 2022. The report attributes the decline in farm income to a significant drop in crop prices, increasing production costs and a drop in government farm payments.
ERS forecasts net farm income, a broad measure of profits, to decline from the projected $155 billion in 2023 to $116 billion in 2024, representing a nearly $40 billion drop and the most significant year-to-year decrease recorded. This marks the second consecutive decline following the peak farm income of $185.5 billion in 2022.
In inflation-adjusted 2024 dollars, ERS projects a decrease of $43.1 billion (27.1%) in net farm income from 2023 to 2024, along with a $42.2 billion (25.8%) decline in net cash farm income compared to the previous year. These anticipated figures for 2024 would fall below the 2003-2022 averages in inflation-adjusted dollars if realized.
“After the three highest consecutive years on record in 2021-2023, the first farm income forecast of 2024 indicates net farm income this year will return to prior levels,” Agriculture Secretary Tom Vilsack said in a statement. “During this period of record farm income, U.S. farmers rose to the occasion by producing strong harvests and increasing commodity stocks while the U.S. economy recovered more quickly and more robustly than that of the global economy from COVID-19. As a result, while we have rebuilt the global supply, we are seeing a decreased demand for U.S. commodities and commodity prices are coming down. At the same time, while some production costs have come down, others, including labor, pesticides, and livestock purchases, have increased. This brings us to the slightly below historic levels for farm income forecasted today.”
Cash receipts
Farm cash receipts are anticipated to dwindle by $21.2 billion, marking a 4.2% decrease from 2023 to $485.5 billion in 2024. This decline is driven by an expected drop in total crop receipts, down by $16.7 billion to $245.7 billion, chiefly due to decreased revenues from corn and soybeans. The forecast predicts a substantial decrease in corn receipts by $11.3 billion, marking a 14% decline. According to Daniel Munch, an economist at the American Farm Bureau Federation, the decline comes amidst recent drops in corn futures prices to a three-year low, driven by anticipations of ample global supplies. Soybean receipts are anticipated to decrease by $6 billion (10%), while hay receipts are expected to decline by $800 million (8.3%).
Additionally, receipts from animal and animal products are projected to decline by $4.6 billion to $239.8 billion in 2024, with declines anticipated in various sectors, including eggs, turkeys, cattle/calves, and milk, compared to the previous year. Following several years of growth, receipts for cattle and calves are projected to decrease by $1.6 billion (1.6%), marking the most substantial decline among the livestock sectors. Much stated the decline coincides with the smallest cattle inventories in the U.S. in 73 years, indicating strong beef prices tempered by constrained production.
Production expenses
Total production expenses, encompassing operator dwellings, will rise by $16.7 billion (3.8%) from 2023 to $455.1 billion in 2024. Notably, expenses on livestock/poultry purchases and labor are anticipated to grow significantly, while expenditures on fuels/oils are expected to decrease compared to the previous year.
Labor expenses rose by $2.2 billion (5.3%) in 2023 to reach $44.1 billion and are expected to further increase to $47.4 billion in 2024. Meanwhile, livestock and poultry expenses grew by $6.5 billion (18.8%) in 2023 to $41.1 billion and are projected to grow by $3.3 billion (8 %) to $44.4 billion in 2024.
ERS also noted three other expenses expected to change notably in 2024. Interest expenses in 2024 are projected to stay similar to those in 2023 ($34.2 billion), with nominal increases but a decrease when adjusted for inflation. In 2024, fertilizer expenses are anticipated to rise by 4.3% compared to 2023 ($30.4 billion) but are forecasted to remain lower than the levels seen in 2022 when considering nominal terms. Fuel and oil expenses were projected to decrease by $2.2 billion (11.7%) in 2023, with a further expected decline of $1.2 billion (7.4 %) in 2024, influenced by decreases in energy prices.
Government payments
Direct Government farm program payments are expected to decline by $1.9 billion (15.9%) from 2023 to 2024, mainly due to lower Emergency Relief Program (ERP) payments. Specifically, supplemental and ad hoc disaster assistance payments in 2024 are forecast at $5.9 billion, down by $1.2 billion (17.4 %) from 2023, primarily driven by reductions in ERP payments. Since 2020, supplemental and ad hoc disaster assistance has constituted the largest category of direct government payments.
Farm bill commodity payments under the Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) programs are forecasted to change in aggregate. ARC payments for 2024 are expected to decrease significantly to $39.1 million, down by $231.3 million (85.5 percent) from 2023, as market prices are projected to remain above the levels needed for substantial ARC payments. Conversely, PLC payments are anticipated to increase to $40.8 million in 2024, rising by $32.9 million from $7.9 million in 2023, primarily due to lower expected prices for certain commodities than the previous year.
Munch stressed it is important to emphasize the preliminary nature of this forecast. For instance, net farm income figures for 2023 won’t be conclusive until August 2024 and have already undergone an adjustment of over $18 billion since initial estimates in February 2022. Various supply and demand factors need to play out before economists can formulate confident projections for the year’s farm income.
“With an early expectation of significant revenue declines, though, it becomes all the more important for producers to have clarity on rules that impact their businesses’ ability to operate and for producers to have access to comprehensive risk management options,” Munch said.
