We spent last week updating and creating several charts to summarize and break down the USDA’s latest farm financial data. There are always a few surprises, such as nonreal estate debts in 2022 jumping higher while real estate debt slowed. There are things we anticipated but missed the magnitude of, such as farm interest expense – forecasted to increase by 34% in 2023. And occasionally, the data reveal something that was completely unexpected: farm incomes in 2022 set an all-time high.
The New Record
Figure 1 shows the USDA’s estimate of inflation-adjusted net farm income going back 95 years. The chart also plots the long-run average of $101.2b (in orange). Also included are two black lines that represent one standard deviation above and below the long-run average. When the data are outside these black lines, conditions are exceptionally good or bad in the farm economy. Luckily, we’ve had a very favorable run of good times.
How good? Farm incomes have been above the upper black line five times since 2010 (the last 14 years). In 95 years of data, observations above the upper black line have occurred just a total of 17 times. In other words, 35% of the “good years” in nearly a century of data have occurred since 2010.
For another perspective, inflation-adjusted net farm income averaged $161.9b from 2021 to 2023, the highest three-year average in more than seven decades. Furthermore, the farm economy generated more income in the last three years (2021 to 2023) than it did in the five preceding years (2016 to 2020).
This brings us to 2022. With farm sector incomes estimated at $189.b in the latest release, the outlook was $20 billion higher than the USDA thought back in February. It’s also the highest farm income ever estimated. Previously, $180b was the high-water mark and that was reached in 1946 ($180.1b), nearly repeated in 1948 ($179.6b), and briefly returned in 1973 ($180.4b). While the USDA might adjust the 2022 estimates in future updates, 2023 seems bound for the record.
As far as once-in-a-generation (or two) outcomes go, this is one of the favorable outcomes.
Wrapping It Up
Most headlines and summaries of the USDA’s latest income estimate noted the significant income decline for 2023. In real dollars, the contraction was nearly $48b, or 25%. However, the overlooked part is that incomes in 2022 were exceptionally high. Overall, the outlook for 2023 remains positive and historically favorable.
Admittedly, not every farm, region, or commodity can report that 2022 was their most profitable year in nearly a century. However, these data do reveal that despite all the challenges, the last few years have been favorable. This could even be said for the last 10 or 15 years. It reminds us of the Andy Bernard quote from the finale of The Office: “I wish there was a way to know you were in the good old days before you’ve actually left them.”
For those still curious, we broke down the sources of change in the USDA estimates and summarized the latest in debt, interest expense, working capital, and capital expenditures.