Economic growth and inflation will slow in the coming months, but commodity prices are likely to be volatile as the world’s farmers try to catch up with the global appetite for food, said two leading agricultural economists on Wednesday. “I think that 2023 still looks pretty strong” for U.S. farm income, said Nathan Kaufman, the Kansas City Federal Reserve Bank’s principal expert on agriculture economics.
High commodity prices, due in part to warfare in Ukraine, will propel U.S. net farm income to a record $160.5 billion this year, despite a steep climb in expenses, said the Agriculture Department on Thursday. Farm income, a gauge of profitability, would be 14 percent higher than last year.
Strong commodity prices are creating opportunities for U.S. farmers to profit despite the risks posed by drought and higher production costs, said the Ag Finance Update by the Kansas City Federal Reserve Bank. Farmland prices surged an average of 20 percent in the Farm Belt during the summer as buyers shrugged off sharply higher interest rates.
Congress is on the cusp of overhauling the farm program but the top question among farmers about government action is interest rate policy, which lies outside the jurisdiction of the Senate and House Agriculture committees, said a Purdue University poll on Tuesday. Concern about interest rates coincided with the Federal Reserve campaign to squelch inflation through regular increases in interest rates.
More and more of America's farmers rely on off-farm income at the same time that agriculture accounts for a smaller share of rural employment nationwide, said a University of Missouri study on Monday. The analysis, commissioned by agricultural lender CoBank, said the majority of principal farm operators worked off the farm and off-farm income accounted for 82 percent of farm household income.
The USDA said Thursday it expects farm income for 2022 to rise 5.2 percent, to $147.7 billion, from a year earlier, with cash receipts for agricultural commodities at a record level. But higher production expenses and lower government Covid-19 payments are presenting some headwinds.
High commodity prices are the fueling a strong farm economy in the Midwest and Plains this summer, but agricultural lenders worry that higher prices for seeds, fertilizer, fuel and other inputs will put the brakes on farm income in the near term. "Lenders reported growing concerns about 2023," said the Kansas City Federal Reserve Bank, one of four regional Feds to survey bankers every three months about farm finances.
Strong agricultural income and favorable interest rates are fueling a nonstop climb in farmland values in the Plains and Midwest, said farm bankers in quarterly surveys by the Kansas City and Chicago Federal Reserve banks. The Chicago Fed said farmland values in the opening months of this year were 23 percent higher than in the first quarter of 2021; the increase was 24 percent for non-irrigated land in the Plains.
Record-high expenses and sharply lower federal subsidies will erode farm income in 2022, according to a forecast by the Agriculture Department. Nonetheless, U.S. agriculture would see one of its best years on record, with net farm income 26 percent above its 10-year average.
After reaching an eight-year high thanks to massive pandemic payments in 2021, net farm income — USDA's gauge of profitability — is expected to fall precipitously this year. The USDA will make its first forecast of farm income on Friday.
Despite the disruptions of the pandemic, U.S. farm income, a broad measure of profits, will be the highest since 2013, thanks to strong corn, soybean, wheat, broiler, cattle, and hog prices this year, said the USDA on Wednesday. "It is primarily a price story," said USDA economist Carrie Litkowski.
Farmers and ranchers have received nearly $30.6 billion in coronavirus relief payments in the past 17 months, according to USDA data released on Monday. Pandemic assistance is a major element in farm income this year, as it was in 2020, and is projected to equal one-fourth of net farm income.
Elevated commodity prices supported farm income and kept the U.S. agricultural economy strong into this autumn, said the Kansas City Federal Reserve Bank on Wednesday. "Prices of most major crops were at multiyear highs moving into fall harvest and supported farm revenue prospects," wrote economists Nathan Kauffman and Ty Kreitman.
The United States will press China to live up to its commitments in the "phase one" agreement, said U.S. trade representative Katherine Tai on Monday in unveiling the Biden administration's "strategic vision for re-aligning trade policies toward China." During a speech at a Washington think tank, Tai said agricultural trade was an "unpredictable sector" given Chinese willingness to intervene in the market.
After reaching its highest level since 2013, U.S. net farm income would tumble by one-fifth next year, despite continued high crop and livestock revenue, said the Food and Agricultural Policy Research Institute on Tuesday. "Under current policies, farm income could drop again in 2022, as government payments decline and production expenses continue to rise," the think tank said.
Higher prices for corn, soybeans, hogs, cattle, and broiler chickens — top U.S. ag products — will boost net farm income to $113 billion this year, the highest since 2013, estimated the Agriculture Department on Thursday. Income would be 26 percent higher than the 10-year average, reflecting the economy-wide recovery from the pandemic.
Fueled by strong commodity prices and continued pandemic assistance, farmland values are skyrocketing, up by 14 percent in the central Midwest and by 10 percent in the central Plains, said the Federal Reserve banks in Chicago and Kansas City on Thursday.
When crop insurance indemnities and unemployment benefits are counted, the government sent $57.7 billion to farm operations and farm households in 2020, while the pandemic sent the U.S. economy into recession, said a working paper by USDA economists. It was the highest estimate yet of federal assistance to farmers last year and the most inclusive.