USDA’s Economic Research Service (ERS) has released the 2022 Farm Sector Income report, showing a decrease in farm income due to higher input costs and a reduction in government support.
The net farm income forecast, a measure of profits, predicts an overall net farm income decrease of $5.4 billion, totaling $113.7 billion in 2022, down from $119.1 billion in 2021.
Net cash farm income—a measurement of cash receipts plus government payments minus cash expenses—is expected to increase by 1.9 percent to $136.1 billion in 2022, but when adjusted for inflation, it will decrease by $2.9 billion (2.1 percent) from 2021.
While 2022 cash receipts overall are expected to increase to $461.9 billion in 2022, lower direct government payments and higher production expenses are expected to counteract their net effects. ERS projects government payments to fall by $15.5 billion from 2021 to $11.7 billion in 2022.
The decrease is expected because of lower supplemental and ad hoc disaster assistance for COVID-19 relief in 2022 compared with 2021. Meanwhile, ERS projects total production expenses, including operator dwelling expenses, are forecast to increase by $20.1 billion (5.1 percent) to $411.6 billion in 2022. ERS attributes the increase in spending to the rise in feed and fertilizer/lime soil conditioner costs.
According to the American Farm Bureau Federation (AFBF), “Farmers and ranchers are most concerned about the increase in production costs, particularly in fertilizer and other inputs, the cost of which will challenge their ability to reach above breakeven. This is apparent in USDA’s estimate for farm financial indicators, which shows a decline in working capital and an increase in farm debt.”
ERS projects farm sector equity in nominal terms to be $2.85 trillion in 2022 and total farm debt to increase by $13.1 billion to $467.4 billion. The farm sector debt-to-asset ratio is forecast to increase from 13.89 percent in 2021 to 14.11 percent in 2022, and working capital is forecast to decrease by 3.3 percent in 2022 from 2021.
“Much of the concern across farm country now turns to having enough working capital to cover short-term debt while interest rates remain low, but rapid increases to interest rates could put farmers leveraged with a larger amount of debt in a more difficult financial position,” AFBF said in a statement. “Managing financial risk by lowering production costs and diversifying revenues, or even supplementing revenues with off-farm income, are some of the solutions farmers are considering.”
Median total farm household income is forecast to increase to $88,234 in 2022, a 2.2 percent increase after inflation from 2021. Median off-farm income is projected to increase by 4.4 percent to $74,354 in 2022.
“The anticipation of a weaker year-end balance sheet, despite above-average net farm income, is a strong reminder of the challenges farmers and ranchers face,” AFBF wrote. — Charles Wallace, WLJ editor
