USDA forecasts big drop in farm income levels

By Daniel Munch, American Farm Bureau Federation economist

USDA’s most recent Farm Sector Income Forecast, released Aug. 31, dropped net farm income expectations for 2023 lower than initial February estimates to $141.3 billion, down 23% from 2022’s $183 billion. This $41.7 billion decline nearly erases the $42.9 billion increase that was forecast between 2021 and 2022 but is smaller than the $46 billion gain between 2020 and 2021 following the COVID-19 pandemic. When adjusted for inflation, net farm income, a broad measure of farm profitability, is expected to decrease $48 billion (25.4%) in 2023. The forecast also shows farm and ranch production expenses continuing to increase, rising by $29.5 billion (7%) in 2023 to $458 billion, following a record increase of $56 billion in 2022. 

It is important to note USDA finalized net farm income for 2022, which has been forecasted until this release. In February, USDA had estimated 2022 net farm income at $162.7 billion, a 16% increase over 2021. This was adjusted to $183 billion, a 31% increase over 2021. USDA made upward revisions to cash receipts received in 2022 by over $6 billion and downward revisions to production expenses over $12 billion, explaining much of the difference.

Direct government payments are estimated to decrease by $3 billion, or 19%, between 2021 and 2022 to $12.6 billion. This marks the third consecutive decrease in government payments for producers since the peak of the COVID-19 pandemic in 2020 but is higher than the $10.2 billion in payments forecasted in February. The decrease corresponds to near total reductions in both USDA pandemic assistance, which included payments from the Coronavirus Food Assistance Program and other pandemic assistance to producers, and non-USDA pandemic assistance programs, such as the Small Business Administration’s Paycheck Protection Program. Ad hoc and supplemental program payments, which include payments from the Emergency Relief Program (ERP), Quality Loss Adjustment Program and other farm bill designated-disaster programs, are expected to decrease from $11.3 billion to $7.4 billion, a 34% decline. Importantly, programs like ERP have not yet been extended for 2022 or 2023. If Congress authorizes more payments for disasters in these years, corresponding numbers are expected to increase dramatically. 

Commodity insurance indemnities were adjusted down slightly for 2023 for an expected $21.85 billion. This a 9%, or $1.79 billion, increase over 2022’s $20.06 billion, marking the highest payout of indemnities since the data series began in 2005. This increase is likely the result of increased crop insurance enrollment by those who received a Wildfire and Hurricane Indemnity Program-Plus or ERP payment and are required to purchase crop insurance or Noninsured Crop Disaster Assistance Program coverage (when crop insurance is not available) for the next two available crop years. 

Livestock

The largest decrease in net farm income is tied to a projected fall in cash receipts from livestock due to lower prices for all major categories except cattle and turkeys. The value of livestock production (in nominal dollars) is expected to decrease nearly 5%, or $11.9 billion, in 2023. This is a slightly smaller drop than forecasted in January when a 6%, or $14.7 billion, decline was estimated. Chicken eggs, broilers and milk are responsible for the largest percentage decreases, with cash receipts for chicken eggs projected to slip by $6.26 billion or 32%. Highly pathogenic avian influenza has affected nearly 59 million birds in commercial and backyard flocks in the U.S., including over 43 million egg layers, pressuring supplies and pushing up prices. As the flock continues to recover, egg production increases and consumer demand fundamentals recalibrate prices lower. A similar dynamic has resulted in a $6.52 billion, or 13%, drop in expected cash receipts for broilers. Milk receipts are expected to decline nearly $12 billion (21%) as milk prices have faltered throughout the year. June 2023 marked the first month that the Dairy Margin Coverage program’s “catastrophic” $4 margin level has been breached, illustrating the severity of price declines. 

Cash receipts for cattle and calves are estimated to increase by $15 billion or 18%. Drought conditions in the West and southern Plains have damaged pastures and led to higher costs for feed such as hay. This has compelled many farmers to market heifers that would typically be kept for breeding and herd replacement, pressuring U.S. cattle inventory for years to come. Tighter cattle supplies have pulled both cash and futures prices higher, leading to continued growth in cash receipts.

Cash receipts for hogs are estimated to decline by 10% or $3 billion. It is important to note that hog farmers have experienced considerable losses in 2023. Losses for farrow-to-finish farms in Iowa were estimated to be $18.81 per head in June, the eighth consecutive month of losses in these operations.