The U.S. Department of Agriculture released its forecast for calendar year (CY) 2023 farm income on Feb. 7, 2023. Because it is a calendar year forecast, it will contain important data from the current 2022/23 crop year, but it will also include forecasts of the 2023/24 crop year to determine the average 2023 income and expenses.
The report charts economic conditions that are important for farm families including sugarbeet and sugarcane growers. It covers farm businesses with sales of more than $350,000 per year and farms where the operator’s primary occupation is farming. These farm businesses account for roughly 1 million of the 2 million U.S. farms and produce about 95 percent of the agricultural products in the United States.
For Sugarbeets And Cane
According to the report, “other crop” farm income (includes sugarbeet and sugarcane farm returns) are forecast to be down 9 percent in 2022 and expected to be down by another 12 percent in CY2023. Recent projections from USDA also note that some regions of the U.S. are expected to see record sugar production, but others are showing declines. Overall, U.S. production of sugar this year is likely to exceed 9 million tons for only the 5th time ever. The projected year ending stocks provide for a balanced market and adequate supplies for 2023.
Net Income Is Down For All Ag Sectors
Overall net cash farm income is expected to fall by $39.4 billion compared to last year. The large decline is, in part, attributed to the record year for corn and soybean returns in 2022 which inflated last year’s numbers. Meanwhile, crop returns for many other crop producers already saw a decline last year. The forecast for the coming year signals a broader downturn for the farm sector, with all crop and livestock farm businesses expected to see falling earnings.
Dramatic declines are expected for dairy operations (down more than 40 percent year-over-year), cattle operations (down by 25 percent), hog operations (down by nearly 30 percent), wheat operations (down more than 20 percent) and specialty crops (also, down more than 20 percent).
Regionally, the largest expected declines in farm income are expected to be found in the dairy regions in the Upper Midwest and Northeast (down by 30 percent year-over-year) and along the specialty crop growing regions in Florida, Texas, and the West Coast (down by 24 percent year-over-year).
After reaching a peak median farm household income in 2021, farm household income (which includes both farm and off-farm income) is expected to fall for the second year in a row to $96,715.
What Is Pulling Income Down In 2023?
Overall, the drop in crop receipts (roughly $9 billion) and livestock receipts (down $14.7 billion) is accompanied by a whopping increase in input costs (for a third year).
The largest increase in costs by percentage is the growth in interest payments on debt (up more than 20 percent). Labor, taxes, seed cost and pesticides are expected to cost more this year. Fertilizer and fuel costs are expected to decline, however, compared to last year. Still the net increase in input costs is projected to be more than $18 billion.
Government payments are expected to continue to fall from the high we saw in 2020 (more than $50 billion) to approximately $10 billion in 2023, which will primarily consist of conservation payments and ad hoc disaster assistance. That is the lowest level of government payments to agriculture since 2014, despite record levels of input costs.
Federal crop insurance indemnities less farm paid premiums are expected to rise by 15 percent in CY2023 to a level of $11.4 billion. (For crop year 2022, there were more than $16.2 billion in reportable losses, nearly double the losses from 2021, with more than $6.75 billion in farmer paid premium.)
The Balance Sheet Weakens But Remains Strong Historically
That said, farm income is expected to end CY2023 above the historic 20-year average. The overall debt to asset ratio is expected to rise to 13.22 percent in 2023 above the 10-year moving average after falling last year to 13.1 percent. That means that debt held by farmers relative to their farm assets is rising, but still at a low level. High levels of debt-to-assets indicates that a farm might be approaching insolvency. As an example, the overall debt-to-asset ratio peaked during the farm crisis of the 1980’s at a level near 22 percent.
Relatively strong balance sheets are reflected in the fact that current levels of farm bankruptcies are at their lowest point since 2004 at less than 1 bankruptcy per 10,000 farms. The debt service ratio (share of production to cover debt payments) has started to rise again though (similar to the debt-to-asset ratio) and working capital available for farm operations has started to fall.
So, unfortunately, it’s likely that the bankruptcy rate will increase in 2023 following those trends.