The Financial Health of the US Farm Sector

Key Points

• After a relatively short period when the agricultural sector experienced close-to-average farm incomes, net farm incomes increased well above their 20-year inflation-adjusted averages in 2020 and 2021 because of federal emergency relief payments and relatively high agricultural commodity prices. 
• Farm incomes are forecasted to remain well above average levels in 2022, despite the rollback of pandemic-related subsidies and rising costs for major farm inputs, because prices received by farmers for many commodities have been exceptionally high.
• While trade wars, widespread drought, high input prices, and volatile international markets have created challenges for US agriculture, the farm sector as a whole, and the vast majority of farms, is in an exceptionally healthy financial position as Congress begins to consider the provisions of the 2023 Farm Bill. 

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Introduction

The US Department of Agriculture’s (USDA) Economic Research Service (ERS) projects that net farm income is forecasted to be $147.7 billion in 2022, 42 percent higher than the inflation-adjusted average since 2000 ($104.1 billion) but slightly lower than the inflation-adjusted figure for 2021.¹ The ERS projects that net cash income, a more accurate indicator of cash flow, will be $168.5 billion in 2022, 35 percent higher than the inflation-adjusted average since 2000 ($124.5 billion) and the highest level since 2012.²

The strong levels of income in 2022 are particularly striking given the recent large increases in total production expenses (11.3 percent over 2021) and, in particular, fertilizer expenses (43.8 percent over 2021). Farm debt is projected to decrease by 1.2 percent from the historically high levels in 2021 but remains less than 13 percent of the total value of farm assets, which are also estimated to increase by 3.6 percent over 2021.³

In this report, we update an earlier assessment from February 2021⁴ and provide an overview of the general agricultural economy’s financial shape using a range of indicators. Overall, these sector-wide indicators demonstrate that as of August 2022, the farm economy looks to be in strong financial shape.

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Notes

1. US Department of Agriculture, Economic Research Service, Farm Sector Income & Finances: Highlights from the Farm Income Forecast, September 1, 2022, https://www.ers.usda.gov/topics/farm-economy/farm-sector-income-finances/highlights-from-the-farm-income-forecast.
2. US Department of Agriculture, Economics Research Service, “Data Files: U.S. and State-Level Farm Income and Wealth Statistics,” https://www.ers.usda.gov/data-products/farm-income-and-wealth-statistics/data-files-u-s-and-state-level-farm-income-and-wealth-statistics.
3. US Department of Agriculture, Economics Research Service, “Data Files.”
4. Eric J. Belasco, Joseph W. Glauber, and Vincent H. Smith, Whither Agricultural Policy in 2021 and Beyond, American Enterprise Institute, February 2, 2021, https://www.aei.org/research-products/report/whither-agricultural-policy-in-2021-and-beyond.