Latest Farm Income Data Point to Third Strong Year

The USDA’s first estimates for net farm income in 2023 show a third year of favorable conditions. In this week’s post, we will consider the latest data and frame up just how significant the recent farm income boom has been.

Net Farm Income

There are several ways of slicing the latest data, and a simple year-over-year comparison shows 2023 incomes are $31b, or 18%, lower than in 2022. While statistically true, this measure misses the big picture: the last few years have been phenomenal.

Figure 1 shows inflation-adjusted net farm income for the U.S. farm sector since 1929. Across the nine decades of data, inflation-adjusted farm incomes have averaged $100b annually (plotted in orange). Furthermore, the black lines represent one standard deviation above and below that average, or $132b and $68b. In general, observations outside the black lines represent really good or poor times in U.S. agriculture.

Estimated at $137b, net farm income in 2023 would be the sixth-highest observation since 1970. Combined with being above the upper black line, the initial outlook for 2023 is very favorable.

Not shown in Figure 1 is that the outlook for 2022 has greatly improved. In September 2022, the USDA estimated 2022 net farm income at $147.7b. Currently, the estimate is $162.7b. This large improvement is a reminder that the 2022 and 2023 estimates are subject to several revisions and potential shocks.

Figure 1. Real Net Farm Income, 1929-2023 (2023=100). Data Source: USDA ERS.

Figure 1. Real Net Farm Income, 1929-2023 (2023=100). Data Source: USDA ERS.

Comparing Booms

The 2023 data are a long way away from being finalized, but it’s worth noting how strong the recent outlook has been.

Specifically, there are three key points:

  1. From 2021 to 2023, net farm income averaged $153b annually. This is to say that farm incomes, for three consecutive years, have average levels 50% higher than the long-run average.
  2. Accumulated farm incomes for the recent three years ($459b) are roughly equal to the accumulated income of the preceding five years (2016-2020, $464b).
  3. Net farm incomes for the recent three years averaged $153b, which exceeds the earlier 2011-2013 income boom, which averaged just $145b annually (inflation-adjusted dollars).

Wrapping It Up

The latest data show that farm incomes in 2022 are among the highest observed in all of history. This fact has largely been overlooked and can distort year-over-year comparisons noting an income decline in 2023. In other words, when farm incomes are historically high, a year-over-year dip doesn’t necessarily mean doom or despair. In this case, the 2023 outlook is also historically favorable, just less favorable than in 2022.

The current estimates show that conditions over the last three years have been very favorable. When stepping back, we simply don’t have many years at levels recently observed and forecasted.

Those still curious should check out the AEI Premium articles that dig even deeper into the last farm financial data. Specifically: factors have shifted between the 2022 and 2023 farm income estimates, direct farm payments are forecasted to reach the lowest levels in nearly forty years, and balance sheets point to more debt and less working capital.