WASHINGTON — After two strong years of growth, U.S. farm income is forecast to drop substantially in 2023 as commodity prices fall and expenses rise, the U.S. Department of Agriculture Economic Research Service reported Tuesday.

And with food prices projected to rise into 2023, the nation’s producers will not be reaping the financial benefits.

The economic team said inflation-adjusted net cash profits are expected to decline from a record-high $195.3 billion last year to $150.3 billion in calendar year 2023, a drop of 22.9%.

Projected net farm income will fall to $136.9 billion, according to the ERS, 18.2% below the calendar year 2022 levels when adjusted for inflation. 2022 marked the best year on record for inflation-adjusted net farm income since 1973.

The division added that declines in farm income are expected to affect nearly all specialty operations and regions across the country.

The farm sector income and wealth forecast was the first of 2023. ERS senior economist Carrie Litkowski also spoke on a webinar about what the details of the forecast hold for farmers and legislators.

“The goal of forecasting is not to predict the future, but to tell you what you need to know to take meaningful action in the present,” Litkowski said.

She said that USDA data on farm income and wealth can contribute to discussions in Congress this year on the upcoming farm bill.

The U.S. farm sector comprises roughly 2 million farms, which operate close to 900 million acres of land.

Broader farm income?

Litkowski said that the drop in net farm cash income and net farm income levels can be largely attributed to lower commodity prices. She noted the ERS forecast a 4% reduction in commodity cash receipts from calendar years 2022 to 2023, equal to $23.6 billion.

Litkowski added that total crop cash receipts are expected to decline close to 6% from 2022, with corn and soy most affected. Still, Litkowski said cash receipts for both crops will remain at relatively high levels.

The economist also cited the impacts of a $5.4 billion reduction in direct government payments to farmers in 2023, to $10.8 billion. This number reflects a forecast 34.4% drop in federal spending, which Litkowski attributed to declining payouts for USDA pandemic aid and disaster assistance programs.

Litkowski also attributed net farm income declines to growing production costs, forecast to increase by an inflation-adjusted $18.3 billion from 2022. Litkowski said these cost increases are driven predominantly by growth in interest rates, livestock and poultry expenses, and labor expenses.

The economists also cited growing operator dwelling expenses as affecting production costs for farmers, including factors like property taxes.

Farm businesses

Litkowski noted that all farm businesses in the report, regardless of location or crop specialty, are forecast to see declines in cash receipts and government payments along with increasing costs.

The ERS noted that average net cash farm income for farm businesses is expected to fall 17.7% in nominal terms, to $92,400. A nominal dollar measure is an amount of money that has not had its value adjusted for the effects of inflation.

The economists added that all commodity specializations of farm businesses are forecast to receive lower average cash net income.

Total animal cash receipts are forecast to decline 8% from calendar years 2022 to 2023. The largest dollar decline for commodities is milk, which is forecast to see a $10 billion decrease in cash receipts.

“Milk receipts will fall in 2023 because of a lower milk price,” Litkowski said.

Dairy and hog farmers are expected to see the largest relative decline in animal cash receipts from calendar years 2022 to 2023.

Cash receipts for eggs are also expected to decline 26% in 2023, compared to calendar year 2022.

Litkowski noted that avian flu caused the price of eggs to skyrocket over the past three years, and that the sector will start to recover from the shocks of these outbreaks in 2023.

Litkowski said that farmers growing cotton and specialty crops are also expected to see large nominal dollar declines.

Geographically, farm businesses in the Fruitful Rim and Northern Crescent regions are among those expected to see the largest net farm income declines.

The Fruitful Rim includes western Oregon, western Washington, south-central Idaho, western California, most of Arizona, the southern rim of Texas, Florida, southern Alabama and southern Georgia.

The Northern Crescent includes the upper Midwest and the Northeast, including Wisconsin, eastern Minnesota, Michigan, Pennsylvania, New York, New Jersey, Connecticut, Maine, Vermont, New Hampshire, Massachusetts and Rhode Island.

Farm businesses in the Fruitful Rim region are forecast to see the largest median nominal dollar decrease, of $46,700, and those in the Northern Crescent region are forecast to see the largest median percentage decrease in net cash farm income at 29.9% per farm, according to the ERS.

Farm household income?

The wellbeing of farm operator households is determined by a combination of on-farm and off-farm activity. Most income for many of these households comes from off the farm, according to the ERS.

The government service found that median total farm household income is forecast to decrease 0.4% in 2023 from 2022, to $96,715, when adjusted for inflation. Yet median net farm income earned by farm households is expected to drop another $442, producing a median average of $1,123 in adjusted net farm household income losses in 2023.

Litkowski said this number should not cause panic.

“At the median, farm income is negative,” Litkowski explained. “But recall that half of all farms are what we call residential farms, where the primary occupation of the operator is not farming. So this results in a low and usually negative farm income at the median.”

Litkowski added that median off-farm income in 2023 is projected to grow to $91,080, a 0.4% increase from 2022 when adjusted for inflation.