USDA chief economist: Farm economy is strong, but some risks remain

The U.S. economy and farm economy are strong, but some risks remain, according to Seth Meyer, chief economist of the U.S. Department of Agriculture. During the USDA’s recent Agricultural Outlook Form—the agency’s 99th such event—Meyer discussed the department’s initial outlook for U.S. commodity markets and trade in 2023, and the current U.S. farm income situation.

“The macroeconomic outlook for 2023 has improved over the past few months, as downside risks of recession have lessened and the prospects of a ‘soft’ or at least ‘softer’ landing appear to be improving,” he said. “Economic growth is expected to remain steady but at a slower pace than in recent years.”

Net cash farm income is expected to fall in 2023 to $150.6 billion after reaching a record high in 2022. Commodity prices continue to be high compared to the first half of 2020 when agriculture was facing “sharp adjustments” in the early stages of COVID-19, but lower than the highs over the last year to date, with a notable exception of cattle, Meyer said. As a result, inflation-adjusted net cash farm income is expected to remain above the 20-year average in 2023. Relative to 2022, lower crop and livestock receipts, lower government payments and higher expenses reduce farm income in 2023. When adjusted for inflation, 2023 net cash farm income is forecast to decrease by $44.7 billion (22.9%) from its record high in 2022 but remain above the 2002-2021 average of $130.5 billion.

Farm equity, which is the difference between farm sector total assets and total debt, and assets are forecast to rise in 2023 by $167.7 billion (5% in nominal terms) to $3.51 trillion. Farm sector assets are forecast to increase 5.2% in 2023 to $4.05 trillion following increases in the value of farm real estate assets. Total farm debt is forecast to increase by $31.2 billion (6.2%) to $535.09 billion (in nominal terms).

Farm real estate assets (land and its attachments) at $3.39 trillion is forecast to account for 83.75% of farm sector assets in 2023, after increasing 6.3% relative to 2022. The value of non-real estate farm assets—which includes investments, inventories, and machinery and equipment—is expected to decline $2.49 billion, a 0.38% decrease in nominal terms (a 3.1% decline in real terms) to $657.5 billion in 2023. Farm non-real estate debt is expected to increase by 2.84% in nominal terms to $159.23 billion in 2023.

The farm sector’s risk of insolvency is forecast to increase slightly in 2023, according to Meyer’s figures. The likelihood of default across the sector, however, is “well below” its peak in 1985 and is also lower than in 2020, he said. The debt-to-asset ratio is forecast to increase from 13.1% in 2022 to 13.2% in 2023 while the debt-to-equity ratio is expected to increase from 15.1% to 15.2%. The equity-to-asset ratio is forecast to decrease from 86.9% to 86.8%.

“Broadly speaking, these changes are small, and despite concerns over the impact of rising input costs on producer returns, commodity prices remain high enough while interest rates remain historically low enough to continue to support farm finances for the sector as a whole,” Meyer said.

Meyer ended his remarks with a message of sustainability and growth through innovation in agriculture markets.

“The focus on sustainability recognizes that resources are finite and suggests new approaches to production practices to use these resources more efficiently,” he cautioned. “This could require a change in mindset and a new direction from some long-standing practices,” noting that opportunities remain for U.S. producers through reduced costs, higher productivity and new market opportunities.

“Sustainability and profitability need not be at opposite ends of the spectrum,” Meyer said. “In fact, they can be mutually reinforcing, generating benefits for the environment, the climate and the bottom line. The high input costs facing producers again this year are a reminder of the value that can be gained by using resources more efficiently, and where possible, reducing dependence on fossil fuel-based products.”