Earlier this fall, the USDA released updated projections of net farm income. The most common observation was that farm income would slip lower in 2022, which didn’t come as a surprise given rising production costs. After diving through the data, however, we found three overlooked insights about the farm economy in 2022.
#1) Another Phenomenal Year
While there are always regional and commodity expectations – especially when there is significant drought – the farm economy in 2022 looks to be phenomenally good. Not only are 2022 conditions historically favorable, but the USDA also estimates similar conditions in 2021.
Figure 1 shows real – or inflation-adjusted – farm income for the entire sector. Estimated at $147.7b, U.S. net farm income in 2022 is set to be among the highest in history. Since 1970, farm incomes have been higher only three times: in 1793 ($172b), in 2013 ($152b) and in 2021 ($149b). For additional context, farm income in 2022 is roughly double that observed in 2016 ($73.9b).
#2) 2022 Versus 2021: Similar But Also Very Different
While the top-line numbers for 2021 ($148.6b) and 2022 ($147.7b) are very similar, there are significant differences when diving into various categories.
Figure 2 shows the sources of change in net farm income from 2021 to 2022 across various categories. The first suspect to consider is higher production expenses, which are $35b higher in 2022. To provide some context about a $35b change in production expenses, the category is roughly 13% higher.
Another significant change was the $15b decline in government payments. You can read more in the related AEI Premium article, but direct payments have plummeted from those record highs of 2022.
On the positive side of the ledger, the values of crop production (+$8.1b) and animal production (+$43.5b) have increased enough to largely offset the headwinds of higher production expenses and lower government payments. Keep in mind that those revenue gains, however, were largely from the livestock sections.
#3) Big Changes Even Within 2022
Finally, those that carefully monitor these data might have noticed the USDA’s September estimates for 2021 and 2022 are considerably higher than previously estimated. Specifically, in February, the USDA estimated sector income at $123b for 2021 and $114b in 2022.
While we aren’t going to jump into the source of those changes here (you can read more here), it’s worth pausing to consider just how much variation has been observed. For 2022, the $34b improvement to the outlook changes the summary from “pretty good” to among the highest observed throughout one’s career.
Wrapping It Up
While there are a lot of concerns and challenges in the U.S. farm economy, it’s worth pausing to observe that – across the entire sector – the profits have been very strong. While not every commodity, region, or producer can say it has been among the best years in their careers, the overall favorable economic conditions shouldn’t be overlooked or overshadowed by rising production costs and macroeconomic uncertainties.
In a year when there haven’t been a lot of positive economic stories, we’ll leave this article on a high note.