U.S. net farm income will be a stronger-than-expected $151 billion this year, the second-highest total on record, estimated the Agriculture Department on Thursday. That’s roughly $10 billion higher than the August forecast and due chiefly to cost cutting by producers, aided by lower fertilizer, fuel, and feed prices.
Although net farm income, a broad gauge of profitability, would be down sharply from the record $182.8 billion of 2022, it would be far above the 10-year average of $101.5 billion. “One of the best years on record for the overall farm sector,” said Agriculture Secretary Tom Vilsack.
Although production expenses this year will be the highest ever, farmers and ranchers are spending 3% — $14.6 billion — less than forecast in August. The reduction more than offset a mild decline in crop and livestock revenue, leaving more money in the bank and higher overall income.
This is the third year in a row of extraordinarily high farm income, a factor in the debate over the elements of the new farm bill. Ag groups say ever-rising expenses justify an increase in subsidies as a shelter against the inevitable hard times in a cyclical industry where commodity prices are currently declining. The Biden administration opposes a potential raid on climate mitigation funding to pay for higher subsidies.
Vilsack called for diversification of farm income during a speech at South Carolina State University. Climate mitigation and climate-smart products could be two of several new sources of revenue for small and medium-sized operators and an alternative to the “get big or get out” approach to farming.
“That’s why it’s important to have a farm bill that supports programs like these,” said Vilsack, so lawmakers should leave alone the $20 billion that was allocated in 2022 for the USDA’s land stewardship programs with a priority on climate mitigation and adaptation.
In its new farm income forecast, the USDA said lower prices would trim farmer spending on fertilizer by 14 percent this year compared to 2022. Pesticides, fuel, and feed would also cost less. On the other hand, higher interest rates would cost producers an additional $10.3 billion this year. “This reflects expectations that both total debt levels and interest rates will rise in 2023,” said the report.
Lower market prices are driving down crop and livestock revenue this year. Receipts for corn, soybeans, and cotton, three of the most widely planted crops, were forecast to fall by a combined $14.4 billion. Milk, hog, broiler chicken, and egg revenues would also fall. Cattle receipts, however, would rise by $14.3 billion. “Rising prices are expected to drive receipts for fruit and vegetables $1.2 billion (4.7%) higher during the year,” said the USDA.
Thanks to strong farmland prices, the value of farm real estate would increase 7.7% this year, outpacing the rise in debt. Land is 80% of farm assets. The debt-to-asset ratio, a commonly used measurement of the financial health of the farm sector, was forecast to fall to 12.73% this year, down from 12.93% in 2022 and the lowest ratio since 2016.
Median farm household income was forecast at $99,802 this year, up 4.6% from last year. There are roughly 2 million farms in the country, many of them relatively small. “Many farm households primarily rely on off-farm income,” said the USDA. The Census Bureau estimated median household income nationwide at $74,580 this year.
The farm income forecast is available here.