Farm CapEx Jumps Higher
Changes in Capital Expenditures
Capital assets – tractors, barns, and vehicles – are a unique expenditure as the asset’s useful life spans multiple years. Therefore, we expect capital purchases to ebb and flow as farm incomes rise and fall.
Figure 1 shows that capital expenditures began trending higher in 2020 (2022=100). After falling to lows of nearly $33 billion in 2018 and 2019 (during the trade war), expenditures hit $42 billion in 2021 and are forecasted to reach $44 billion in 2022.
The inflation-adjusted data shows capital expenditures peaked at more than $50 billion between 2012 and 2014 (2022 dollars). Furthermore, capital expenditures are generally $30 billion and $35 billion annually. In other words, capital expenditures in 2021 and 2022 are roughly one-third higher than normal.
The USDA also provides a breakdown of the capital expenditure data. First, the largest categories of capital purchases in 2021 were machinery (32%) and tractors (31%); see Figure 2. Buildings (11%), trucks (12%), and land improvements (10%) were also significant.
An even deeper dive into the data reveals that the increase in overall activity (Figure 1) hasn’t been uniform across the categories. While tractors account for 31% of total purchases (Figure 2), activity is 45% higher than in 2018. For comparison, machinery purchases were up only 33%. At the extreme, the miscellaneous category, which is only 3% of total activity, increased by 47%. The other categories posted modest increases while automobiles declined.
Wrapping It up
As expected, farm capital asset purchases have gone up following the increase in sector incomes. While incomes are on-par with 2011-2013 levels, capital purchases – thus far – remain considerably lower. Some of this could be attributed to limited supply stemming from supply chain challenges or producers deploying profits differently.
Finally, the upturn in activity isn’t consistent. Capital purchases of tractors and miscellaneous assets have increased the most in recent years.