USDA senior economist reports 2022 farm sector income forecast
Washington, D.C. – In the U.S. Department of Agriculture (USDA) 98th Annual Agricultural Outlook Forum, USDA Economic Research Service Senior Economist Carrie Litkowski discusses the health and well-being of the agriculture economy.
2022 USDA farm income forecast
“Three times a year the USDA Economic Research Service (ERS) puts out data on the farm sector income and wealth,” shares Litkowski. “This data can be used to gauge the health of the farm sector, which is often changing.”
Currently the industry is being impacted by COVID-19, higher inflation and farm policy changes.
On. Feb. 4, the USDA released a 2022 Farm Sector Income Forecast. The report touches base on several areas of focus in the agriculture economy.
“Net cash farm income for 2022 is forecast at $136.1 billion, up 1.4 percent relative to 2021 in nominal dollars and net farm income is forecast at $113.7 billion, down 4.5 percent,” shares Litkowski. “If net cash farm income was adjusted for inflation, the number would fall, because a 1.4 percent increase is not expected to offset the rising inflation which is expected in 2022.”
Cash receipts from commodity sales are expected to increase by 6.8 percent in 2022, but partially offsetting this increase in cash receipts are direct government payments, which are forecast to fall 57 percent, she explains.
“Additionally, total production expenses are forecast to increase by five percent. On the farm sector balance sheet, debt assets and equity are also forecast to increase slightly, but not enough to counteract inflation,” says Litkowski. “When we look at farm businesses, which are a subset of all farms – basically larger farms and where the principle occupation of the operator is farming – average net cash farm income for these businesses is forecast to increase almost two percent in 2022.”
The USDA also predicts “median total farm household income will increase almost six percent – to a little over $88,000 in 2022.”
The USDA utilizes two primary measures to determine farm profitability and income – net cash farm income and net farm income, she notes.
“Net cash farm income includes cash receipts from sales of farm commodities, other cash farm related income and includes government payments – and then it’s less cash expenses,” she shares. “Net farm income is considered to be a broader measure of income because in addition to cash components of income, it also includes some non-cash items accounting for economic depreciation and changes in inventory.”
With inflation calculated into the current numbers, USDA forecasts for both measures of net income – net cash farm income and net farm income are expected to fall in 2022, and this is after a forecast increase in 2021, she explains.
“Specifically, net cash farm income is forecast to decrease by two percent and net farm income is forecast to decrease almost eight percent,” continues Litkowski. “In spite of these declines, both measures in 2022 are expected to be above the 20-year averages in 2021 to 2022.”
USDA derives net farm income numbers from the bottom up to identify drivers behind the change.
Several drivers contributing to net forecast decline in 2022 include crop receipts expected to increase by $12 billion, but USDA forecast $9 million of those sales came from the prior year’s harvest. With the net farm income number, the goal is to measure income from current production only, she notes.
Next, livestock or animal product receipts are forecast to increase by $17.4 billion. Production expenses are partially offsetting these increases in income, which are expected to increase by $20 billion, she explains.
Additionally, government payments are expected to fall by $15.5 billion, she adds.
Crop cash receipts by commodity forecast
In inflation-adjusted dollars, overall calendar year crop cash receipts are forecasted to increase in 2022, following increases in 2021.
“Receipts for corn, soybeans and wheat are all expected to increase, and this is largely due to higher quantities sold in 2022,” she says. “The largest dollar increase is being forecast for soybeans at $2.7 billion and cotton receipts is expected to see the largest percentage of increase at 29 percent – due to expectations for both higher quantities sold for cotton receipts and higher prices.”
Animal product cash receipts forecast
Animal and animal product receipts are also forecast to increase in 2022 – including receipts for cattle, dairy and broilers due to higher prices, she shares.
“The largest increase is being forecasted for dairy or milk receipts at nearly 18 percent – putting them at the highest level since 2014,” she explains. “Receipts for hogs are forecast to decrease 13 percent due to following forecasts for lower prices in 2022.”
“Total direct government payments are another source of income to farmers, which have strongly influenced farmers’ income over the past few years,” she notes. “We define government payments as payments made directly to farming operations by the federal government without any intermediary, generally coming from farm programs.”
USDA records government payments in the year in which they were received by farmers. Government payments reached a record high in 2020 at nearly $46 billion nominal, and in 2021, government payments were forecasted to decline by $18.5 billion and decline another $15.5 billion in the coming year, she shares.
The declines follow lower amounts of COVID-19 related aid to farm operations based on authorizing spending to date – this includes payments from USDA and non-USDA assistance programs. This includes payments from the Coronavirus Food Assistance Program, the Small Business Administration’s Paycheck Protection Program (PPP) and other USDA pandemic assistance paid directly to producers.
USDA is not expecting any new PPP loans in 2022, she shares. Payments acting as a function of commodity prices are also forecasted to trend downwards in 2022, mostly because of lower payments under the Agriculture Risk Coverage program and Price Loss Coverage program.
2001 to 2020 inflation adjusted total direct government payments averaged $19.8 billion, and in 2022 payments are forecast below this average at $11.7 billion.
Farmers’ total production expenses are forecasted to continue to rise in 2022, she adds. When looking at inflation-adjusted dollars, 2020 was the first increase since 2014, and production expenses is forecast to increase 1.5 percent in the coming year when adjusted for inflation; by 5.1 percent in nominal terms.
Expenses such as fertilizer, interest, livestock/poultry purchases, feed, labor, fuels and oils, pesticides and property taxes/feed are all expected to see increased spending, with feed and fertilizer costs expected to see the largest dollar increases, she explains. Seeds and net rent spending are forecasted to decline in the coming year.
Balance sheet forecast
In addition, the USDA balance sheet is another tool to determine the health of the farming sector. It provides information on the physical and financial assets and the level of debt in the farm sector, she continues.
The balance in the forecast remains stable. The debt held by the sector has seen growth from 2013 to 2020, she notes, “But, in 2021 and 2022, the USDA is forecasting debt to fall slightly in the inflation adjusted series, by about one percent in each year.”
Farm assets and farm equity have remained relatively stable since 2014, but in 2021 and 2022 USDA is forecasting both assets and equity will decline by one percent in 2021 and then two percent in 2022 when adjusted for inflation.
“The sector’s risk of insolvency is increasing but remains historically low,” says Litkowski.
Farm businesses are defined as farms with gross cash farm income of over $350,000 or small operations where farming is reported as the operator’s primary operation. They represent only about half of all farms, but account for more than 90 percent of the sector’s production value, she explains.
“In five out of the nine regions, USDA is expecting to see higher average net cash farm income in nominal dollars in 2022,” says Litkowski. “Across all farm businesses, USDA is forecasting a two percent increase in average net cash farm income and this is consistent with the sector level forecasting net cash income will increase in 2022, in nominal dollars.”
Farm businesses in the Northern Crescent region of the U.S. will see nearly a 16 percent increase due to higher milk cash receipts. Farm businesses in the Basin and Range Region are expected to see the largest decrease, by 11 percent due to a decline in government payments and higher expenses, and the Northern Great Plains and Heartland seeing a two percent increase and prairie gateway seeing a three percent increase, she notes.
The next USDA farm income forecast will be published Sept. 1, 2022.
For more information on the USDA Economic Research Service report, visit ers.usda.gov/topics/farm-economy/farm-sector-income-finances/.
Brittany Gunn is the editor of the Wyoming Livestock Roundup. Send comments on this article to firstname.lastname@example.org.