Highest U.S. farm income in eight years, but headwinds in 2022

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.

Corn, wheat, and soybean receipts would be 36% larger than last year, almost entirely because of higher market prices, said the USDA in its final income forecast of the year. Broiler chicken receipts were forecast to be up 49% from 2020, boosted by a recovery in prices.

Overall, net farm income of $116.3 billion this year would be almost twice the total of 2016, when the farm sector grappled with low prices following the collapse of the commodity boom.

This year's dynamic $64.7 billion increase in cash receipts will swamp a $29.8 billion increase in production expenses and a $18.5 billion decline in federal payments to boost farm income by $22 billion, or 23%, from 2020, which was a 20% increase from 2019, said the USDA.

Producers collected a record $45.7 billion in direct payments from the government in 2020, equal to 48% of income. This year, direct federal payments would total $27.2 billion, or 23% of income.

Farm income could decline sharply in 2022 with the demise of pandemic relief and a continued rise in production expenditures, said the FAPRI think tank in September.

An array of analysts expect commodity prices to soften somewhat in 2022, which could reduce crop and livestock receipts. The USDA will make its first estimate of farm income for the new year on Feb. 4.

"Input costs have risen considerably in recent months, which is likely to increase credit needs and weigh on [farmers'] profit margins going forward," said the Kansas City Federal Reserve Bank on Wednesday.

Fertilizer prices have skyrocketed this fall and are likely to remain elevated "for at least the next six months and throughout the spring 2022 agronomy season," said Denver-based ag lender CoBank. "Nitrogen production shocks, tight global supplies, rising natural gas input costs, and steady demand are pushing up prices."

Nearly all categories of farm expenses have shown increases this year, said the USDA.

Production expenses were estimated at $387.6 billion, 8% larger than last year and near the record of $391 billion, set in 2014. Fuel and oil expenses soared by 32%, livestock feed expenses rose 13%, and the cost of fertilizer and other soil conditioners was up 12.5%.

"The [agricultural] balance sheet is strong and remains strong," said Litkowski during a webinar. The debt-to-asset ratio, a commonly used gauge of financial stress, is virtually unchanged from last year, at 13.9%. Farm assets and debts are up marginally this year. Bankruptcy rates are expected to decline.

Cropland values were up by an average of 15% in the Midwest and Plains, according to ag bankers surveyed by regional Federal Reserve banks in Chicago, Kansas City, Minneapolis, and Dallas.

The largest increases were 28% in Iowa, 26% in Minnesota, and 23% in South Dakota, according to a summary. High commodity prices encouraged farmers to expand their operations.

"Providing support to agricultural real estate markets, interest rates on farm loans remained historically low," said the summary.

The USDA farm income forecast is available here.